News Analysis: Tax breaks to benefit crucial growth driver

More tax breaks will be rolled to benefit small and micro businesses in China, as their contribution to job generation and growth is crucial amid downward pressure on the economy.

From Oct. 1, 2015, to the end of 2017, companies with annual taxable income below 300,000 yuan (46,937.34 U.S. dollars) will have their corporate tax halved, according to a statement released by the State Council, China's cabinet, on Wednesday.

This will be the second time this year that the cabinet has raised the threshold for businesses to qualify for the tax break. In February, the government raised the same threshold from 100,000 yuan to 200,000 yuan.

Qu Changxiu, who owns a fishing rod factory in east China's Shandong Province, said February's measures had saved him over 12,000 yuan, which he used to update operational arm of his business.

He said the policy had allowed him to hire six new employees, secure a new contract worth 1.4 million yuan and company profits had increased by 30,000 yuan.

The previous 200,000 yuan threshold, however, has been lambasted by some for failing to translate into any real savings. On average, businesses targeted by February's policy have projected annual savings of only 5,000 yuan.

He Liang, general manager of a software firm in northwest China, said his company's revenue last year hit 5 million yuan but profits were only 80,000 yuan.

"Software engineering needs continuous investment," he said. "We expect more tax support for small high-tech businesses like us."

Analysts believe the cabinet's announcement will lighten tax burdens for more small businesses as they provide nearly 80 percent of urban jobs.

Economic performance data in July fell short of market expectations. According to the National Bureau of Statistics, China's value-added industrial output expanded by 6 percent year on year, down from 6.8 percent in June.

Fixed-asset investment also witnessed slower growth, indicating no obvious improvement of investment into the property and infrastructure sectors.

The cabinet also promised tax breaks for companies with monthly revenue under 30,000 yuan. They will be exempt from value-added tax and business tax until the end of 2017.

According to the State Administration of Taxation, the measures in the first half of the year saved small and micro businesses 48.6 billion yuan. At least 8.65 billion yuan of business income tax has been reduced, and over 27 million companies benefited.

Businesses have voiced concern over the policy's effectiveness, however, the administration is confident of its success as it has made particular arrangements to guarantee it will benefit the targeted businesses.

The economy grew by 7.4 percent in 2014, its weakest annual expansion in 24 years, and a string of economic indicators, including manufacturing and trade data, all suggest continued weakness. Endi