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. 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
Highlights
In recent years, there has been a general trend of tax cuts to ensure economic recovery
Focusing on the above-mentioned disputes, in this article we are going to clarify the theoretical aspects of the measurement of the VAT tax burden and prove the opinion that the VAT reform should be based on complete understanding of all the three levels of the VAT burden – macro, mid- and micro-level – and its four key indicators – the statutory tax rate, the effective tax rate, the nominal tax burden and the actual tax burden
Focusing on the above-mentioned questions related to this problem, this article clarifies the concept of the VAT tax burden; the authors hold the opinion that we should have a full understanding of tax burden on the macro-economic, industrial, and micro-economic levels as well as its four indicators – the statutory tax rate, effective tax rate, nominal tax burden, and actual tax burden indicators
Summary
There has been a general trend of tax cuts to ensure economic recovery This trend involves major economies such as the United States, Germany, and France, which have successively implemented or are going to implement reforms aimed at lowering taxes. Focusing on the above-mentioned disputes, in this article we are going to clarify the theoretical aspects of the measurement of the VAT tax burden and prove the opinion that the VAT reform should be based on complete understanding of all the three levels of the VAT burden – macro-, mid- and micro-level – and its four key indicators – the statutory tax rate, the effective tax rate, the nominal tax burden and the actual tax burden.
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