The Ministry of Finance and the State Taxation Administration recently issued a joint notice, clarifying that small and micro enterprises with an annual taxable income of 1 million yuan ($157,119) to 3 million yuan will have their taxable income cut by 25 percent, based on a 20 percent tax rate, for three years starting Jan 1.

According to this year's Government Work Report, China reduced extra taxes and fees by about 1.1 trillion yuan in 2021, benefiting micro, small and medium-sized enterprises the most. As the COVID-19 pandemic is not over yet, small and micro businesses continue to face production and operation issues. Cutting taxes and fees could, however, help them tide over the difficult times, stimulate market vitality, smooth market supply and demand, stabilize expectations, promote growth and ensure employment.

By the end of 2021, China had 154 million market entities, 103 million of them self-employed businesses and 51 million enterprises, of which micro, small and medium-sized ones account for more than 90 percent and play a very important role in employment, innovation and people's livelihood. The better development of small and micro enterprises can also stimulate the passion of entrepreneurship, wealth creation and innovation.

The preferential tax policies extended to small and micro enterprises are not only universal but also targeted. On the one hand, the announcement makes clear the preferential tax rate for small and micro enterprises based on simple algorithm, clear tax reduction and simple procedure. On the other hand, this preferential tax policy clearly defines the period of implementation and provides a three-year preferential period for small and micro enterprises.

From 2018 to 2022, the central government has allocated about 9 billion yuan to promote entrepreneurship and innovation among small and medium-sized enterprises. In 2021, the government launched awards and subsidies to support the development of small and medium-sized enterprises that are specialized and innovative. So far, more than 300 such companies have benefited from the support and registered more than 25 percent average growth and net profit in the past two years, about twice the average growth of all listed companies.

Also, the central government has always given special care to small and micro businesses in monetary policy. The liquidity released by each monetary policy adjustment is always tilted toward helping small and micro enterprises resolve their financing difficulties.