Improved Tax Assistance for China SME’s Belt & Road Procurement Contract Bids

By Chris Devonshire-Ellis 

China’s State Taxation Administration released a circular yesterday, (April 21, 2021) requiring the implementation of the ‘Measures for Playing the Role of Government Procurements in Promoting the Development of Small and Medium-sized Enterprises’ which was jointly released by the Ministry of Finance and the Ministry of Industry and Information Technology at the end of 2020.

According to the Circular, local tax authorities should grant deductions for quotes from small and micro enterprises in accordance with the provisions of the Measures, and then conduct the procurement evaluation with the reduced quotes.

Local tax authorities may, in consideration of the project conditions and within the range as specified in the Measures, determine the price deduction ratio or the price bonus ratio reasonably based on the average profit margin of the procurement target in the relevant industry and the market competition, to provide more opportunities for small and micro enterprises to win the bid.

Although the circular is not specifically aimed at BRI projects, in essence it has an impact, on foreign investors in China interested in tendering for China infrastructure build overseas as part of the Belt and Road Initiative. China leveled the playing field for foreign investor participation in procurement as part of recent changes made to its Foreign Investment Laws from 2020, with no discrimination against foreign parties permitted.

That has recently been underlined with Beijing threatening punishments on local Governments should they not be in compliance. The moves, which should be of interest to all manufacturing enterprises looking to secure procurement contracts in China, come as Beijing is well aware that some overseas-build projects have not been to the desired standards and that foreign participation to ensure better QC standards is desirable. In addition, some of the BRI infrastructure now being put in place is hi-tech and requires the inclusion of foreign component parts.

Renaud Anjoran of Quality Inspection in China comments “Foreign Chambers of Commerce have been advocating for a more level playing field, and this may be a step in the right direction. It may also be a way of showing the European Parliament that China is serious in matching the EU’s openness. Whether foreign companies’ bids will really be evaluated on the same criteria as domestic parties’ bids remains to be seen, but this is a step in the right direction. Beijing recognizes that poor quality can be quite expensive, more so than giving business to foreign businesses. One could also see this as a recognition that some Chinese manufacturers are truly on par with international competition.”