China’s ‘unprecedented and sufficient’ tax cut still does not do enough for small manufacturers, owners say
- Premier Li Keqiang said last week that Beijing will cut the value-added tax (VAT) rate for manufacturing firms by 3 percentage points to 13 per cent from April 1
- Owners play down suggestions it could boost domestic business and aid employment to help offset the slowdown in growth caused by the US-China trade war
After much consideration, Guangdong garment factory owner Steve Liu reluctantly decided to turn down an order from an overseas client for two million pairs of trousers even after China’s decision to cut taxes to help businesses, highlighting the “cruel world” of small and medium-sized manufacturing.
The order of cropped pants would have, in the end, resulted in a loss for Liu as the offer of US$4 (26.86 yuan) per pair was below the 29.3 yuan production cost before tax.
“Those boasting that these policy tax cuts are unprecedented and sufficient, I bet they have never been a boss of a small factory like ours,” he said.
Liu’s decision highlights the dilemma faced by many small and medium-sized (SMEs) manufacturing operations in China as the government’s well-intended efforts to help are not sufficient because of rising costs.
“Do you know why we still prefer the export orders? Because there is no profit at all from the production process. What we earn is the export tax rebate of between 11 and 13 per cent. It’s an open secret in the industry,” added Liu.
