18 January 2020

POLICY WATCH: Tax relief for small firms begins to pay off

An initiative from the Chinese government to waive business tax and value-added tax for small and micro enterprises that have monthly sales of less than 20,000 yuan has drawn positive response from the community, with the policy seen encouraging more people to start their own businesses.

Shandong, for example, has announced that a total of 65.5 million yuan of tax was waived in the first month after the tax cut policy took effect from August, benefiting 130,000 registered small and micro enterprises in the province. 

The local government said it has streamlined the administrative procedures for enterprises seeking qualification for the tax cut, which should help more small and micro firms. Authorities expect small and micro firms to save as much as 800 million yuan on tax over a full year under the new rule.

Thanks to the new policy, Shandong saw robust growth in the number of small and micro enterprises. A district of Jinan city, for instance, is said to have seen a 63 percent increase in small and micro enterprises since August. The newly registered enterprises, which are mostly with registered capital of less than 10,000 yuan, are in online service, e-commerce, retail and trading industries, according to a statement from the Shandong government.

In Weifang, another city in the Shandong province, small businesses have shown improved business confidence after the tax cut. More than 60 percent of 120 firms surveyed have said that will boost their production capacity, the government said. Enterprises plan to add one to 10 machines to boost their manufacturing output.

The new tax cut will also encourage more job creation and help ease the nation’s employment situation. Officials in Weihai said 67 interviewed small firms were seeking to recruit more than 100 new workers in August, as the tax cut policy offered room to hire more people.

A network equipment firm said the company was actively expanding its business and seeking to add 5 new employees on top of the existing seven. Many firms are using the saving from the tax payment to boost manpower for business growth.

Wenzhou in Zhejiang province, which is well-known for its large number of entrepreneurs, also saw more than 40,000 small and micro enterprises benefit from the tax cut, with estimated annual saving seen at 34 million yuan. Qualified small and micro enterprises accounted for more than 82 percent of the total, fueling their business momentum.

The tax policy came as the nation’s new leaders pledged more support for small businesses after taking office in March this year. The State Council has canceled or decentralized a total of 167 items that required central administrative approvals. The gradual cancellation and adjustment has positive and practical significance to reap the reform dividends and enhance the basic role of market forces in allocation of resources.

The special SME development fund has seen its budget being hiked to 15 billion yuan this year, from last year’s level of 14.17 billion yuan. The central government has supported 20 provinces and cities to start building small and micro enterprise service platforms and offer more support to the firms for transformation and innovation.

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EJ Insight writer