China's small and micro enterprises whose monthly sales do not exceed 20,000 yuan (US$3,258.2) will be temporarily exempt VAT and business tax starting from August 1, according to a statement released by the State Council.

As well as being good news for small and micro enterprises, the move is a step towards fair taxation.

Despite similarities with self-employed businesses in terms of production capacity and gross sales, small and micro enterprises do not benefit from tax exemptions as self-employed businesses do.

Companies registered as small and micro enterprises must follow enterprise operational mechanisms and account management procedures, as well as give employees full social security benefits. Such enterprises are unable to improve their internal regulatory structures due to the heavy tax burden they face.

The new VAT and business tax exemption is therefore an essential requirement in the move towards fair taxation.

The new tax deduction policy will lighten the tax burden on small and micro enterprises, which will contribute to China's economic growth and increase employment.

The implementation of the new preferential tax policy is expected to relieve as much as 30 billion yuan (US$4.89 billion) in annual tax liability. The move will benefit more than six million small and micro enterprises and directly benefit tens of millions of people.

The recent climate has not been favorable for small and micro enterprises. They have struggled with the prospect of RMB reevaluation, increasing labor costs, the rising cost of raw materials and energy resources, difficulties with financing, as well as taxation and assorted fees. Against such a backdrop, the new policy is especially timely.

It is my belief that VAT or business tax should be halved for those small enterprises with monthly sales revenues of between 20,000 and 100,000 yuan (US$3,260-US$16,300). It is also necessary to provide subsidies to small businesses and cut their social security contribution liabilities.

Considerable tax deductions are the only way to lighten the burden facing small business, and will enable them to improve production and sales and hire more staff.

The government should also formulate an overall tax deduction plan for all sectors of the economy and ensure that such measures are implemented thoroughly and in a timely fashion.

The author is an economist, columnist, financial and economic critic.

This post was first published in Chinese and translated by Xu Lin.

Opinion articles reflect the views of the authors, not necessarily those of China.org.cn.

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