The Impact Of Fiscal And Taxation Policies On The Venture Capital

As a kind of innovative financial activity, Venture Capital has made great contributions to economy development, technology improvement and entrepreneurship all around the world since it was born. It has gradually become a wide-spread investment means to invest in the high-technology industry and SME (small-medium enterprise) as well as to provide various services in the world nowadays. Although VC in China has a later start and a weak foundation, it is going to a mature stage after suffering more than20years ups and downs. By analyzing the total investment of VC on2008,2009and2010, we could find that the scale of VC in China has a steady upward trend. However, there are still many problems existing, which call for our continuous exploration and research. Besides, the VC development mode is determined by the current economic situation, which is complex and particular. That is to say, there is still a long way to go before the VC system suitable for China is built up.With the development of Venture Capital, more and more scholars begin to focus on some studies of VC. Current domestic and abroad studies on VC mostly concentrate on several aspects, such as the studies on the developing history of Venture Capital, the discussions about the organizational forms of Venture Capital, the research on legal normalization of Venture Capital, and the analysis about the influences on the technology improvement in new SME and on the capital market, which are caused by Venture Capital. The issue of how to apply fiscal and taxation policies to encourage and guide VC development, which is an important VC promoting measure supported by government, has attracted more and more attention as well. The existing literatures focus on issues such as the influence of tax rate on the Venture Capital and the defects in the current fiscal and taxation policies of VC in China. This thesis studies fiscal and taxation policies of VC in China in a more systemic way, which is a rarely studied perspective. This article is divided into five parts. The prolegomena introduces the prnpose and the significance of this research. Thereafter, the paper summarizes a great amount of old literatures about VC, and introduces the relationship between VC and fiscal and taxation policies.The second chapter is a normative analysis on Venture Capital and the interrelated fiscal and taxation policies. First, the connotation is venture capital is defined, followed by the three effects of VC:capital aggregation effect, labor optimization effect and technological advancement effect. The paper introduces the development evolution of fiscal and taxation policies related to Venture Capital in China, as well as the main problems existing in current regulations. To continue, the paper summarizes the mechanism how the. fiscal and taxation policies affect the venture capital in both theory and practice. Through a tax-no tax model, the paper analysis the economics mechanism how tax affects the VC, followed by how the tax affects the costs and profits. In the practical prospective, the whole operation process of venture capital fund-from fund collection, project choosing, post investment project management and withdrawal link was affected by taxation in different ways. As for fiscal policies, the paper elaborates the effects of distinct policies on Venture Capital, such as the government procurement, financial guarantees and financial assistance.In latter chapters, at last, by collecting and sorting a great deal of data from2006to2011provided by VC-backed companies, the paper makes a model connecting the fiscal and taxation policies with the Venture Capital and economic development. The paper also provides an empirical analysis on the positive correlation between the fiscal and taxation policies and the Venture Capital, as well as the Venture Capital and the economic growth.Then America, Japan and European districts are chosen in this paper as three typical examples to make a comprehensive comparison by analyzing their good experiences and mistakes during the development process. Also through the summary of the venture capital status in those three countries or districts, the paper points out that we could learn lessons and experiences from those developed countries or districts to perfect the system of fiscal and taxation policies related to venture capital in China. Through analyzing the final model, the paper proposes that government should provide financial subsidies and preferential tax for Venture Capital in order to promote economic development. In the end of this paper, some advices are given on how to perfect the system of fiscal and taxation policies of Venture Capital in China.