The Ministry of Finance said on Wednesday that it plans to temporarily exempt service-outsourcing companies from sales tax in 21 Chinese cities including Beijing, Shanghai, Dalian and Shenzhen.

The move is part of a government effort to bolster the crisis-stricken industry and boost its expansion.

The new policy runs from last month to December 2013, and covers firms specializing in information technology outsourcing, business process outsourcing and knowledge process outsourcing.

For taxes already levied since July 1, firms can ask for a deduction in the following tax collections.

"The tax waiver will be good news for smaller firms, because most big enterprises have already enjoyed a business tax exemption since the beginning of this year," said Jin Hui, tax director at Neusoft Corporation, China's largest software outsourcing firm.

In the early 2009, the State Council issued a regulation to make service-outsourcing companies exempt from business taxes in 20 cities.

But only companies that can be called "technologically advanced" were qualified for this preferential policy, which required technology-advanced service firms' revenue account for more than 50 percent of total sales.

"It was a relatively high threshold for small or newly set-up company, but for firms such as Neusoft and Dalian Hi-Think Computer Technology, Corp, (the exemption) was quite easy to apply for it," said Tian Nan, spokeswoman at Dalian Hi-Think, another IT outsourcing firm.

Jin at Neusoft said the tax-free policy has saved his company more than 3 million yuan in the first seven months.

"I think for smaller IT outsourcing companies, the tax wavier could help them double their revenue each year," Jin said.

In the first half of this year, China's software outsourcing revenue reached $1.23 billion, jumping 38.8 percent over the same period last year, according to statistics from the Ministry of Industry and Information Technology.

However, the rate was lower than the 64.5 percent growth in the first six months of 2009, largely because of the global economic downturn.

Deloitte LLP said in a recent report that China could be one of the most powerful competitors in global service outsourcing industry in the next 10 years, with an average annual growth rate of 23 percent.

Deloitte LLP said that China's service-outsourcing market could reach $43.4 billion in 2012 from $23.6 billion last year.

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