There Are SMEs In China


By Global Tax Weekly

China announced a further package of tax cuts to benefit SMEs, extending previous reductions in income tax and VAT exemptions. That’s presumably good news for would-be businesspeople, although it’s difficult to tell from a distance how far Chinese entrepreneurs are tormented by bureaucrats, as is the case for small businesses in Europe and America. All governments make great play of their support for SMEs, but in most countries the reality is very different from the hype, at all levels of existence. The average Western small business would definitely regard its central government, its local government and the tax authority as being a well-armed and vindictive set of bandits determined to prevent it from succeeding in the market-place.

The panoply of difficulties confronting a would-be start-up in most countries includes at least the following:

a raft of administrative requirements (register your business, comply with health and safety and environmental rules and licensing regimes depending on the sector);

a fight with the tax authority, which will try to prevent you from being self-employed and deducting legitimate expenses from your turnover;

disadvantages of a VAT regime which prohibits you from reclaiming “input tax” until you have already a significant turnover;

obligation to pay property taxes, income taxes and other state imposts before being able to generate profitable turnover;

restrictive labor legislation preventing you from hiring and firing staff according to circumstances and which gives significant advantages to workers as against bosses.

Not surprisingly, faced with such difficulties, many entrepreneurs turn to the black and operate their businesses in a cash-driven space outwith the conventional business arena. This leads the authorities to regard business-people as proto-criminals, and cranks up a vicious circle of repression against start-ups that ends by totally defeating the avowed purpose of government. It takes a brave and clever politician to understand the need to step back and allow entrepreneurial creativity to flourish; and few make the grade. If the Chinese are really doing so, then congratulations to them. In Europe you will look in vain for a country which is even 10 percent of the way towards such an enlightened position.





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