VAT and business tax cut announced for small firms

The latest tax exemption policy for small- and micro-sized businesses has been announced against a backdrop of weak fiscal revenue growth as the economy cools off, underscoring the government's efforts to foster small business development, the Ministry of Finance said in a statement posted on its website on Tuesday.

The decision to scrap value-­added taxes (VAT) as well as business taxes for small businesses starting August 1 was made by the State Council at an executive meeting on July 24. The government believes the move will benefit more than 6 million small- and micro-sized companies that employ tens of millions of people.

Small companies with monthly sales of no more than 20,000 yuan ($3,258) will be qualified for the exemption, according to the State Council.

The tax exemption will lead to an estimated total tax cut of around 30 billion yuan per annum, the ministry said in the statement, noting that the new move comes in the wake of a series of supportive government policies that have been released over recent years offering various tax and administrative fee cuts for small businesses.

But concerns remain that the new policy will not be efficient enough in relieving the tax burden on small companies, according to the statement, which responded by saying that the implementation of preferential tax policies needs to give full consideration to the country's public finances, which have already been feeling the pressure of a faltering economic recovery.

In the first half, China took in 6.86 trillion yuan in public fiscal revenue, a rise of 7.5 percent year-on-year, according to the ministry. During the same period of 2012, the growth rate stood at 12.2 percent.

If the tax exemption was designed too broadly and covered the whole small business sector, it could have an impact on public fiscal spending, said the Tuesday statement.

To cope with challenges faced by the economy, the ministry said Friday that general fiscal spending will be further cut during the second half, citing Finance Minister Lou Jiwei.