Since the onset of the Covid-19 pandemic, fiscal and taxation policies have achieved effective results in securing financial spending for pandemic prevention, enhancing supplies and providing subsidies for medical staff and research. In addition, the introduction of exemptions or reductions for businesses and small-scale taxpayers has helped to support the accelerated resumption of work and production.
Shift attention
A package of tax and fee reduction measures, in relation to income tax, value-added tax and related fees, has achieved good social effects. However, the beneficiaries are mainly micro, small and medium-sized enterprises (SMEs) that have already resumed their production and operations. Those that are struggling or on the verge of bankruptcy because they are unable to operate due to shortage of funds and/or other reasons may not be able to benefit from tax cuts and fees.
Implementing a tax rebate policy for SMEs can solve the funding difficulties of those that are not short of markets or products
In the post-Covid era, fiscal and tax policies should shift their attention to supporting smaller enterprises in urgent need of financial support and helping those who are unemployed to navigate through their difficulties.
Rebates for recovery
With the resumption of work and production in various regions around the country, problems such as rising labour costs, difficulty in capital turnover and sluggish market demand have plagued many SMEs. A tax rebate policy that pays SMEs back either 10% or 20% of the total tax paid by the SMEs in the previous year or three years would help businesses to recover.
Implementing a tax rebate policy for SMEs can solve the funding difficulties of those that are not short of markets or products. This is not only an incentive to encourage SMEs to pay what they owe from previous years; it also helps SMEs to resume their work and production.
Relief funds vital
The main impediments to resuming work and production faced by many SMEs are a lack of capital and technology. Dedicated financial relief funds would help SMEs solve financial difficulties around their production and operations.
In the past, many local governments provided financial support for the establishment of hi-tech enterprises in their regions. At this stage, governments and financial departments at all levels should provide financial relief funds to grow SMEs and promote their healthy development.
Welfare package
In addition, support funds should be provided to those who are unemployed due to Covid-19. The financial department should set up special aid funds to ensure that the basic living expenses of people who are unemployed, and university students who cannot find a job after graduation, are met. This is to maintain their physical and mental health and professional readiness to be able to work at any time.
In the course of Covid-19 prevention and control, close consideration should be given to raising the standard of sustenance allowance for the poor and the standard of retirement benefits for retirees, so as to ensure that their daily living standards are not reduced due to the pandemic.
International perspective
Additionally, the setting up of an international pandemic assistance fund to help countries fight Covid-19 would be welcome. China should set up an international pandemic assistance fund, with its major source of funding from the national financial budget, to help countries stop the spread of the virus. Such a fund would mainly be used to assist countries with medical and health supplies, the expense of medical personnel in the fight against the pandemic, and to utilise Chinese medicine in the fight against Covid-19.
Fiscal focus
With a series of prevention and control measures in place, fiscal policies have led to a substantial increase in financial expenditure, while the decline in corporate revenue, and the implementation of tax and fee reduction policies, have brought about a decline in fiscal and tax revenue. As a result, the fiscal balance is facing severe challenges.
The financial department should implement comprehensive measures to achieve an annual fiscal balance. There are three approaches to achieve this: firstly, increase the fiscal deficit ratio; this year’s can be increased to about 3.5% from the previous year’s 2.8%.
Secondly, increase the proportion of profits generated by state-owned enterprises paid to the government, as the profit level is moving higher.
Finally, further reduce spending by the party, government offices and undertakings, to reduce financial expenditure.
