(Yicai Global) Aug. 24 -- Smaller manufacturing businesses in China may struggle as CNY526 billion (USD76.7 billion) of deferred taxes need to be paid over the next six months.

The Covid-19 situation remains severe in some places and a number of firms still have operational issues, so they could face a cash crunch if the deferral scheme is not extended, according to Tian Zhiwei, deputy dean of the public policy and governance institute at Shanghai University of Finance and Economics.

The government permitted micro businesses and SMEs to hold off paying corporation, personal and valued-added taxes, among other levies, for the fourth quarter of last year to alleviate pressures arising from Covid-19 outbreaks and surging raw material prices. That was extended earlier this year, but companies need to start making those postponed payments from this month through January. And local tax collectors have begun to remind them.

The size of the deferred taxes accruing to smaller manufacturers stood at CNY526 billion as of July 20, data from the State Taxation Administration showed.

“This is a very good policy to moderate corporate cash flow pressures,” said Zhang Feng, the chief financial officer at an auto parts maker. “Deferred tax payments play the role of interest-free loans, and are even better actually since there is no need to submit additional materials or go through a review procedure.”

So far, the deferrals for the company have amounted to about CNY7.8 million (USD1.1 million), according to Xu Yi, the company’s boss. The policy eased the firm's funding pressures as it invested in new production lines this year, he added.

The government's general public budget revenue fell 9.2 percent to CNY12.5 trillion (USD1.82 trillion) in the first seven months of this year from a year ago. As the deferral policy expires, fiscal pressures at all levels should gradually diminish.

Editors: Liao Shumin, Emmi Laine, Xiao Yi