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ACFIC Proposal: Tax Rebates& Subsidy for Small Loan Firms

Between the NPC and CPPCC sessions over the past two years, ACFIC has raised a number of proposals about encouraging the healthy and orderly development of private capital, upholdingit as anupcoming major source of investment in China. This year, one of its 29 joint proposals focused on encouraging and supporting the growth of small loan companies as an effective solution for "dredging" private money.

Since the start of pilot programs on small loan companies, they have, to a certain extent, filled the spare business space left by banks, easing the financing difficulties of rural economy, small and micro firms and individual industrial and commercial households, and achieved good economic and social effects.

However, compared to banks, small loan firms bear higher operational risks and costs and face more difficulties and problems.

In its Motion No.7, titled "The Proposal on Bolstering the Development of Small Loan Firms", ACFIC noted that the firms are facing problems on three fronts.

First, credit information. As the firms are not included in the credit record system of the People"s Bank of China, opaque client information will increase the difficulty of risk identification.

Second, taxation. Rural credit cooperatives and small loan firms share high similarities in loan products and target clients. However, small loan firms pay much higher taxes than the cooperatives. The state levies business tax, 3.5 percent surtax, and 50 percent rebate on income tax on the cooperatives, while it charges business tax, 5.6 percent surtax, and full income tax, plus personal income tax upon shareholders" dividends from the loan firms.

Third, policy subsidy. The state fails to give the small loan firms the same support and subsidy policies enjoyed by other institutions with loan business especially those with a big proportion of loan business devoted to agriculture, farmers or the countryside.

Besides, the number of rural township banks allowed by the country is too limited. According to the Master Plan for New Rural Financial Institutions 2009-2011, 1,027 rural township banks will be established within three years, or less than one for each county.

Thus, in its proposal, ACFIC suggested clarifying the legal nature and status of small loan companies as a first step. The firms, which are engaged in financial business, are currently identified as an industrial and commercial enterprise. This ambiguity in identification is preventing it from inclusion in the supervisory system of the financial industry and throwing the legitimacy of its business operations in doubt.

Secondly, small loan companies should receive tax incentives and subsidies comparable to rural credit cooperatives, basically because they are not allowed to take deposits from the public to profit from the differences of interests between deposits and loans.

Thirdly, remove the financing upper limit for the small loan firms set by the banks. Currently, it is required that the amount of financing sourced from the financial institutions of the banking industry is no more than 50 percent of the firms" net capital.

Fourthly, coordinate for linking ofthe firms to the credit databases of the People"s Bank to allow the firms to access the database to check their clients" credit records and reduce business risks.

Lastly, to allow the small loan firms to make structural change and become rural township banks, in line with the State Council"s new 36 Clauses published in May 2010, which "encourages the private capital to initiate or participate in the establishment of rural township banks".

"Encouraging and supporting the development of small loan firms is conducive to regulating private finance and opening investment fields for private capital on the one hand, and it will help improve the country"s financial system and realize the mutiple dimensions and broad coverage of financial services to better serve the development of small and micro firms," said the motion.

ACFIC has sent 29 proposals and six written speeches to the 5th Session of the National Committee of the 11th Chinese People"s Political Consultative Conference, covering seven issues, namely furthering financial system reform, easing financing difficulties of private firms, improving industrial development policies, promoting new strategic industries, supporting private enterprises" efforts togo global and in-source, guranteeing and improving people"s well-being and boost healthy development of chambers of commerce.

Date:2012-3-7 16:13:43