In recent years, the issue of tax burden on small and micro enterprises has become a focal point in ChinaDespite numerous tax reduction policies aimed at alleviating the financial pressure on these businesses, many continue to feel that the relief is inadequateThis phenomenon, where tax reductions do not translate into decreased overall tax burdens, raises critical questions about the effectiveness of tax policies aimed at supporting the backbone of China's economy.

Small and micro enterprises are crucial for fostering market stability, generating employment, maintaining economic growth, and promoting innovationBy the end of 2017, it was reported that there were approximately 90 million small-scale business entities in China, comprising more than 90% of all market participantsCollectively, these businesses account for over 80% of the nation's employment, more than 70% of invention patents, over 60% of GDP, and more than half of total tax revenue

However, these enterprises often find themselves heavily burdened by VAT obligations, putting them at a competitive disadvantageDespite the Chinese government implementing various tax relief measures, the perceived benefits often fall short.

The Chinese government has introduced several significant tax reductions for small-scale enterprises to lighten their burdensThis includes raising the threshold for small VAT payers, lowering the VAT rates, and implementing large-scale VAT refund policiesIn 2021, tax reductions for small and micro enterprises reached an impressive 1 trillion RMBHowever, the effectiveness of these measures has not been sufficiently documented in the literature, predominantly focusing on medium and large enterprises while largely neglecting small business evaluationsRecent media reports continue to highlight the substantial tax burden faced by small and micro enterprises, and there is ongoing governmental concern about enhancing their sense of tax relief

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For instance, the State Administration of Taxation launched the "Spring Rain Nourishing Seedling" initiative in 2021, aiming to amplify the tax reduction benefits for these businesses.

One of the critical points driving the complexity of this issue is the significant fiscal pressure faced by local governmentsTo reduce enterprise costs through tax cuts, local authorities have sought to widen the tax base while also managing public revenue efficientlyTax revenues, being a primary source of income for local governments, critically support education, national defense, and public service deliverySince the extensive tax reduction policies introduced in 2008, local fiscal pressures have increased markedlyAs local governments face financial duress, there arises a tendency to tighten tax collection measures to offset potential revenue losses from tax cuts, particularly from corporate income taxes and non-tax income.

Research indicates that the intensity with which local authorities enforce tax collection can vary widely based on fiscal stress and the administrative flexibility regarding corporate taxes

Following the tax reduction strategies, it becomes imperative to investigate whether local entities will increase scrutiny on corporate income taxes or non-tax revenues to alleviate fiscal pressuresThis situation raises essential questions about the true effectiveness of tax relief policies for micro and small enterprises, warranting empirical investigation to determine the extent to which tax burden alleviation remains nominal.

In this context, a study is proposed utilizing national tax survey data spanning from 2007 to 2011, employing a difference-in-differences analytical approach to evaluate the policy impacts following the adjustment of VAT rates for small-scale taxpayers in 2009. The findings from the study reveal critical insights into understanding the dynamics of tax burdens in light of governmental economic strategies.

The analysis uncovers that while tax reduction measures effectively minimize VAT liabilities for small enterprises, the overall tax burdens remain appreciably the same due to counterbalancing pressures

Post-policy implementation, local governments often respond by ramping up enforcement of corporate income tax and social security contributions, leading to an increase in burdens for small enterprisesThe simultaneous existence of tax type substitution and fee replacement contributes to the perception that tax cuts do not alleviate overall financial stress for these businesses.

Moreover, the study indicates that the financial pressures stemming from tax relief initiatives and the flexibility within tax administration significantly impact the overall experience of small enterprises within the tax systemHigher levels of fiscal stress and greater administrative latitude lead to a correlative rise in burdens associated with corporate income tax and social security contributionsInterestingly, while the VAT reductions may not directly alleviate finance-related challenges for small businesses, these initiatives send positive signals to financial institutions, potentially lowering funding constraints and enhancing cash flow for small enterprises, thereby indirectly addressing their financial challenges.

These findings offer several vital policy implications

Firstly, the diverse and often inconsistent definitions surrounding small enterprises need standardization to streamline tax compliance and processing, thus reducing taxpayers' costs associated with fulfilling fiscal obligationsSecondly, when formulating tax relief policies, it is essential for policymakers to consider local fiscal capacities and implement supporting mechanisms to mitigate financial strain on local governmentsThis could include enhancing central-local revenue-sharing agreements and reducing local expenditure responsibilities.

Lastly, there is a pressing need to refine the administration of non-tax income collections, representing a significant cost block for small enterprisesBy intensifying initiatives aimed at cutting these costs, the comprehensive burden of taxes and fees could be eased, providing small businesses with a more conducive environment for growth and sustainability.

In conclusion, while the drive towards tax reduction for micro and small enterprises is a commendable government initiative, realizing its full potential requires a multi-faceted approach