Resolving The Problem Of Difficult Financing Of SMEs On The Basis Of Tax Credit Guarantee System

Since China’s reform and opening-up, the small and medium sized enterprises, or SMEs have become a major source of vitality of China’s market economy, making huge contributions to China’s economic growth, employment promotion, technological innovation, optimal allocation of resources as well as the optimization of industrial structures. Due to the double blow of international financial crisis and the domestic economic cycle, however, China’s SMEs are facing difficulties in financing.For SMEs at their initial development stage, their own characteristics and the information asymmetry between the enterprises and the bank form major obstacles for them to get bank loans. In order to reduce the information asymmetry and relieve the problem of difficult financing, exploring ways to establish a tax credit guarantee system based on tax credit becomes a necessity. In this system, a cooperative model among the government, the banks and the SMEs is formed, with the government providing tax credit guarantee support for trustworthy SMEs, promoting in return the development of such SMEs. In this way, the problem of difficult financing of SMEs can be relieved. On the other hand, a study into the tax credit guarantee system of major developed countries such as Japan, the USA, and the UK further inspires China’s innovation of its tax credit guarantee system. It is suggested that the tax credit, instead of commercial credit of SMEs, should be included as the basis in financing and therefore establish a comprehensive tax credit guarantee system that promotes commercial credit with tax credit. Such a system will not only encourage the enterprises to pay taxes with credibility, but also is favorable for resolving the problem of difficult financing of SMEs.