Journal of Tax Reform
Tax burden reduction and tax cuts in China’s vat reform
Yong Fan 1, Haonan Li 1, Qinyao Zhu 1
1 Central University of Finance and Economics, Beijing, China
Abstract
The article discusses the impact of VAT reforms in China aimed at reducing tax burden. These include the VAT transformation, “replacement of the business tax with the VAT”, and the simplification and consolidation of the tax rate. The purpose of our study is to describe the results of the VAT reforms and answer two questions: why is there so much controversy surrounding tax burden in the context of the “business tax to VAT” reform? and why are companies so concerned about the VAT reform? These questions can be answered if we analyze the four indicators of the VAT tax burden: the statutory tax rate, the effective tax rate, the nominal tax burden and the actual tax burden. These indicators can also be considered on three levels: macro-level (state or region), mid-level (industry), and micro-level (enterprises). The article illustrates the differences and relationships between these indicators and uses them to analyze the effect of the tax cuts. The input-output method is applied to analyze the indicators for the 2008–2015 period. All indicators of the VAT reform, except for the statutory tax rate, show a clear declining trend in terms of tax burden: the effective tax rate in various industries has dropped by about 1% to 10%; the nominal tax burden, by about 0.5–5%; the actual tax burden, by 150 billion yuan. Therefore, we recommend to reduce the VAT burden by establishing a VAT retained refund system and by increasing the actual deductible rate of enterprises.
Keywords
value-added tax, VAT reform, business tax, statutory tax rate, effective tax rate, nominal tax burden, actual tax burden, input-output method
JEL classification
H25, G28, P31References
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Acknowledgements
Authors greatly appreciate Parshina Lika’s contribution to this article, especially in the translation and proofread work
About Authors
Yong Fan – Ph.D, Professor, Secretary of Party Committee. School of Public Finance and Economics, Central University of Finance and Economics (Beijing, 102206, China); ORCID: 0000-0002-1741-001X; e-mail: yongfan008@sina.com
Haonan Li – Postgraduate student, School of Public Finance and Economics, Central University of Finance and Economics (Beijing, 102206, China); ORCID: 0000-0001-7748-665X; e-mail: 17310704731@163.com
Qinyao Zhu – Master Student, School of Public Finance and Economics, Central University of Finance and Economics (Beijing, 102206, China); ORCID: 0000-0002-3647-5652; e-mail: zqy112361@163.com
For citation
Fan Y., Li H., Zhu Q. Tax burden reduction and tax cuts in China’s vat reform. Journal of Tax Reform. 2019;5(1):23–41. DOI: 10.15826/jtr.2019.5.1.058
Article info
Received July 7, 2018; accepted February 1, 2019
DOI: http://dx.doi.org/10.15826/jtr.2019.5.1.058
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