Relieving burdens on small-sized business

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Relieving burdens on small-sized business

(People's Daily Online) 13:34, August 07, 2013

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For the current economic situation, the society consensus is that economy is running smoothly, but it still at a risk of economic downturn. To achieve the goal of “steady growth, structural adjustment, inflation controlling and risk prevention”, what should the government do?

A number of policies and measures formulated by the State Council recently clearly show two principles: one is staying steady, which prevents stimulating economic growth with heavy investment; the other relieving burdens on small-sized business.

The State Council decided to scrap value-added taxes (VAT) as well as business taxes for small businesses with monthly sales of no more than 20,000 yuan ($3,258) since August 1. This move will benefit more than 6 million small- and-micro-sized companies that employ tens of millions of people.

At present, for small-scale taxpayers, VAT is 3 percent and sales tax is 5 percent. Let’s take a small company with monthly sales of 20,000 yuan for example; 600 to 1,000 yuan will be saved monthly after the exemption. As a result, it will reduce tax burdens on more than 6 million small-and-micro-sized companies by tens of billions yuan.

Also, there are some doubts about setting monthly sales of 20,000 yuan as the criterion for exemption. It’s unfair for some small companies which are in difficulty as well, although their monthly sales are over 20,000 yuan.

In fact, since August 1, the reform program to replace the business tax with a value-added tax will be expanded nationwide. It’s calculated that the reform would save 120 billion yuan. What’s more, as the main beneficiaries, small-sized companies got the most tax break of 40 percent in average.

Any companies with annually sales of no more than 5 million yuan or monthly sales of no more than 400,000 yuan can be regarded as small-scale taxpayers and get obviously tax cut. For example, if the company has an annual turnover of 5 million yuan, about 5 percent of its annual turnover, 250,000 yuan would go sales tax. However, after reforming, it only needs to pay VAT at 3 percent, which means it can have a tax break of 100,000 yuan annually. In addition, as the highlight of fiscal reform, replacing business tax with VAT will result a far-reaching effect on steady growth, structural adjustment and employment promotion.

In addition to tax break, the government also focuses on creating a fair and open market environment, standardizing administration action, streamlining approval procedures and eliminating unreasonable fees. During the economic transformation, the government is responsible for providing financing services and establishing investment funds to support the development of small business.

While limited in size, small businesses are the most elementary part of market economy. They play an important role in domestic employment and sustainable development of economy.

At the same time, this series of measures bring about immediate consequence to government, like less tax revenue and more serious payment imbalance. In the first half, it’s rare to see that a public fiscal revenue rise of 7.5 percent year-on-year is lower than that of GDP. Under this situation, it takes courage for government to continue reforming and withstand pressure.

How to mitigate the fiscal imbalance? Government takes actions from two aspects. On one hand, it strictly limits regular expenditure and practice thrifty. Construction of office buildings will be avoided in five years. On the other hand, government place resources where they are needed mostly to improve people’s life.

Compared to previous drastic measures of stimulating economy, the gentle fiscal reform seems to be more effective to the sustainable development of China’s economy.