Board Chairman Liu Hanyuan recently accepted interview by China Economic Times, and aired his views on alleviating burden for small and medium sized enterprises in China.

On burdens for SMEs, Mr. Liu noted, China’s economy is undergoing profound adjustments. SMEs have become the strongest market force supporting economic adjustment, and have the most profound microeconomic foundation. High tax charge has become the major problem affecting the development of SMEs.

Overburdened by taxes and other factors, SMEs are facing severe environment for survival, one of the leading causes of bankruptcy among SMEs. The problem has affected the sustainable development of the national economy, as well as social harmony and stability.

Years ago, the State set down a guideline of "simplified taxation system, wide tax base, low tax rates, strict tax collection". The implementation, however, is not quite in place, where tax base is widened, and tax collection gets strict, but taxation system is not yet simplified, and tax collection is not low enough.  There is room for further optimization and adjustment. Chairman Liu pointed out 6 aspects: 1. The turnover tax based taxation system is harmful for SMEs. 2. The burden of social insurance is heavy. 3. Approved levy is not standardized. 4. Tax charge restraints are inadequate, giving rise to the phenomenon of ’messes and deep holes’. 5. The cost/profit ratio complied by SMEs is higher than that by large enterprises. 6.  The state’s preferential policies mostly have become a mere formality. Additionally, the State does not have a comprehensive public decision-making mechanism. SMEs have limited channels to participate in the decision making process, and insufficient information communicating capability with government, media, and industry associations. When corporate interests are infringed and unable to resist, it is difficult for SMEs to safeguard their legitimate rights through institutional measures. Some enterprises are often forced to take tax evasion and other non-legitimate means to express their interest demands. These opportunistic behaviors possess "mass destruction" over survival and overall development for SMEs, and objectively encourage the furtherance of misbehaviors among government departments.

In summary, Mr. Liu stated, extensively ranged governance with controlling excessive resources will lead to maximum fiscal expenditure and heaviest tax burden. He made recommendations as follows: 1. The State shall make systematic planning and top-level design, truly achieving corporate tax burden reduction from the root cause. 2. Regulate the ’hand of government’ and establish mechanisms that inhibit illegal charges and fines by government departments. Set up a passage that helps SMEs to resist the government arbitrary charges and levies. 3. Streamline administration, institute decentralization. Give full play to the role of the market mechanism. Government and departments shall make clear their responsibilities, and fulfill the functions respectively. However, balance shall be maintained between government function and excessive governance.