China's income tax reforms in recent years have cut costs of small and medium-sized enterprises (SMEs), which improved their ability to hedge risks as well as spend more on research and development (R&D).

SMEs such as a packaging material company Lesui can use the money they saved from tax cuts on improving equipment.

"We have spent over 25 million yuan on R&D in the last three years. And the government's tax policies allow us to claim additional deductions for our innovation expenditure, and that cut our tax base by more than 10 million yuan ($1.58 million) last year," said Yu Xiaolin, general manager of Lesui Industrial.

Yu also pointed out that SMEs are also allowed to handle their tax filings for the first three quarters of a year in advance. That means they can get the tax return for the first three quarters filed earlier in the year, which helps ease their financial burdens.

New tax policies this year also allow SMEs to depreciate newly purchased equipment worth over five million yuan over a shorter period of time. That has helped SMEs like Shanghai Yulian Supply considerably.

Xu Zhenjiang, chairman of Shanghai Yulian Supply, said his company bought a piece of equipment worth eight million yuan this year.

"The new measures allow us to depreciate the machine over a shorter period, which will also reduce our tax base. And we will be able to invest more in R&D," Xu said.

The new tax incentives have simplified the tax filing process. In the past, companies might have had to wait quite a while for regulators to check whether they are qualified for tax incentives. But now all the reviews are carried out after taxes are paid on the basis of the tax-payer's own estimates.

Wang Yifei, who works in Enterprise Income Tax Department of Shanghai Municipal Tax Service, State Taxation Administration, said that taxpayers can estimate themselves whether they are qualified for the incentives, and go ahead and file their taxes.

"We will check their information after that, which will save them a lot of time," Wang added. "The new tax policies also clarify the exact definition of micro, small and medium-sized companies."

In addition, a large number of companies in Shanghai fit those definitions, and so can take advantage of the incentives, Wang explained.

Tax cuts are among the ways China used to support SMEs over the past two years. However, the pandemic and complex international situation still pose significant challenges to these companies.

Hu Yijian, principal of the Institute of Public Policy and Governance from Shanghai University of Finance & Economics, pointed out that SMEs from different industries are contributing a lot to the country's employment, but they don't have strong abilities to hedge risks due to their size.

"Economic uncertainties such as rising commodity prices have increased their costs," Hu said. "So the government's launch of more tax and fee cuts for them is both to support their growth and stabilize the economy."

According to the Ministry of Finance, China cut about 1.1 trillion yuan in taxes and fees last year to support businesses' stability and growth, and the number for this year will be even larger. The government also aims to further improve the payment services by moving most tax return processes online this year.