Local governments are facing a lack of fiscal revenue, and thus have transferred the crisis onto companies, said Cai. Leaders at all levels of government see their political and career future determined by their achievements, which are mainly appraised by GDP growth.
Therefore, tax quotas are increased gradually from provincial governments down to county-level governments, before finally being footed by enterprises and business owners, he said, adding that entrepreneurs have lost confidence in the general business environment.
Within the past five months, the total amount of taxes for industrial enterprises in Wenzhou have increased by 1.9 percent, despite a 19 percent drop in profits, according to a research report by Financial and Economic Committee of the Zhejiang Provincial People's Congress in July 2012.
In China, small- and medium-sized enterprises (SMEs) suffer from six kinds of "hidden" burdens, including taxes, sundry fees, fines and corruption, according to a comment posted on People's Daily by Zhang Bin, a researcher with the Institute for Finance and Trade Economics under Chinese Academy of Social Sciences.
Economic confidence
The real situation is in sharp contrast to what officials promised. Overhead levies are not allowed, vowed Finance Minister Xie Xuren in a report to the Standing Committee of the National People's Congress on August 29, 2012.
Actions by local governments have flown in the face of preferential policies for SMEs issued by the central government, said Cai, adding that the fairest way to implement preferential policies is to reduce taxes for SMEs across the board instead of giving them occasional prizes.
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