Research On The Financial And Economic Effects Of "Business Tax Replaced With VAT"

Tax revenue is one of the three cornerstones of finance as the foundation and important pillar of national governance.Tax reform is of great significance to the establishment of modern financial system.As the largest developing country and transitional country in the world,China’s tax system is undergoing constant adjustment.Similar to most developing countries,China is a country with commodity tax as the main tax category.In 2011,the scale of value-added tax and business tax in China was 2420 billion and 1360 billion respectively,accounting for 27.04% and15.24% of the total tax revenue,14.57% and 32.85% of the total tax revenue of the government.Because of the problem of duplication of tax and deductible chain in the value-added tax and business tax,China began to reform the value-added tax in some provinces and cities and some industries since 2012.It is aiming at reducing the double taxation in the process of tax collection and management,strengthening the control of tax sources and reducing the cost of collecting and managing transactions.Considering that VAT is a shared tax between central and local governments,and business tax is a local main tax category.The reform not only brings about changes in tax collection and administration,but also affects the financial relationship between central and local governments,which will further affect the overall economic performance.Business Tax Replaced with VAT has the effect of the whole society.In theory,tax reform will affect the allocation structure of factors by influencing the relative price of factors.At the same time,under the decentralization system,tax reform will also change the intergovernmental fiscal incentive structure,affect the fiscal strategy behavior between different levels of government,and then produce the overall economic and social effects.The reform of Business Tax Replaced with VAT in China not only provides an important experimental site for inspection theory,but also provides an important inspiration for China’s next tax reform and other developing countries’ tax system reform.In the doctoral thesis,we should take the fiscal and economic effects of changing camp to increase as the research theme,clarify the financial system reform attributes of Business Tax Replaced with VAT.From the perspective of fiscal system,we will comprehensively analyze the impact of Business Tax Replaced with VAT on the financial system.On this basis,we will focus on assessing the strategic behavior choices of local governments in the face of financial pressure under the condition of fiscal reform.Finally,we further evaluate the economic effect of camp to increase from the perspective of factor allocation and market unification.Specifically,the conclusions of this study are as follows.First,theoretically,the significance of the policy reform of Business Tax Replaced with VAT is not only conducive to solving the problem of double taxation of business tax,but also playing a role in reducing taxes.It also helps to open up the industrial chain,deepen the division of labor,optimize the industrial structure,bring into play the scale effect,drive domestic consumption,and help supply side reform,so as to bring the advantages of a unified market,stimulate the vitality of the market,and make the decisive role of market in resource allocation more effective.According to this logic,the division and deepening of the industry will promote the integration of the domestic market,and the policy reform of Business Tax Replaced with VAT has played a certain role in alleviating the segmentation of the domestic market.Tax system reform has the effect of the whole society.Tax system reform brings about the effect of tax reduction,but also means the reduction of government revenue and the intensification of overall financial pressure.Because the cost of tax reduction is not evenly distributed in each level of government,that is to say,tax reduction may have a differential impact on the reduction of government revenue at different levels.Local governments will respond to huge financial pressures in their financial behavior.The reform of Business Tax Replaced with VAT policy will have an important impact on the segmentation of the domestic market,but in general,the direction of this impact is uncertain.In price competition,enterprises in order to pursue low prices to gain advantage in competition,or to gain the benefits generated by scale effect,will make full use of the positive news brought about by the tax reform,actively integrate into the division of labor system and unified market,and improve the domestic market segmentation.However,in terms of the behavior of local governments,because of the different responses of local governments to the input and output of products and services,as well as the impact of differentiated products and services,the impact of market segmentation in different regions and countries is uncertain.However,the final impact of the tax reform policy on domestic market segmentation depends on the comprehensive effect of the above two aspects.Secondly,in the financial system,Business Tax Replaced with VAT is a structural reform of tax reduction,optimizing tax system,deepening the financial system and so on.The Business Tax Replaced with VAT has brought greater pressure on local fiscal revenue,and the fiscal level of the two levels at the provincial level and county level is even more significant.The tax reform has a positive effect on optimizing the tax structure and increasing the relative proportion of direct taxation,and has little effect on the structure of local expenditure.The analysis of provincial,municipal and county level data further confirms the above conclusions.Among the local governments,the more low-level governments are,the more obvious the phenomenon of fiscal mismatch is.The proportion of income distribution at county and county levels is significantly less than that of their expenditure responsibilities.This phenomenon is aggravated after the Business Tax Replaced with VAT.There are regional differences in the impact of Business Tax Replaced with VAT on the fiscal decentralization of prefecture level cities.The tax reform on the one hand reduced the level of fiscal decentralization in the eastern region,and on the other hand,increased the level of fiscal decentralization in the central and western regions.The impact of the Business Tax Replaced with VAT policy on income decentralization is mainly due to the impact of the camp reform on local fiscal revenue.The negative impact of the tax reform on the decentralization of expenditure in the eastern region is mainly achieved by reducing the revenue of local governments.In the central region,the change to local government revenue affects the decentralization of expenditure only accounts for 46.39% of the total impact of the tax reform on the decentralization of the local expenditure.In the western region,it has a total impact of 26.05% on the local expenditure decentralization.The impact of the camp increase on the local fiscal decentralization will have an indirect impact on the local economic growth and industrial upgrading.The Business Tax Replaced with VAT has led to short-term local financial pressure.However,compared with resolving fiscal pressure,it is a chance to reform the financial system.We should push the reform of the financial system and straighten out the responsibilities of government,finance right,financial capabilities and expenditure responsibilities,to coordinate and match the responsibilities of the financial system.Thirdly,under the tax-sharing system,the tax reduction policy will bring about differences in the degree of decline of government revenue at different levels.That led to the financial pressure of local governments,at the same time,aggravate the contradiction of fiscal redistribution between governments,and become an important factor to induce the expansion of the scale of local government debt.With the help of2011-2014 years’ implementation of the pilot reform opportunity of Business Tax Replaced with VAT,this dissertation identifies the financial pressure brought about by the exogenous tax reduction policy and the strategic response of local government debt behavior.The empirical results show that the Business Tax Replaced with VAT does aggravate the financial pressure of local governments,especially the city and county governments.After controlling the tax effort level.It is found that the financial pressure caused by tax cuts has aggravated the local government’s debt impulsion,and the degree of government debt reaction is more obvious in the areas with high debt risk,high expenditure pressure and low market level.Based on the investigation and interview of a prefecture-level city in central China,this dissertation confirms the conclusion of this study.As a self-rescue mode of local government,it establishes a fiscal restructuring plan with expenditure reduction as the core,adjusts the income distribution and power expenditure responsibility at the two levels of urban areas,and improves the business environment,which alleviates the financial pressure of local government to a certain extent.From the perspective of financial pressure and fiscal system,this dissertation provides an explanation and empirical evidence for the expansion of local government debt.The current financial system has pushed the cost of Business Tax Replaced with VAT,resulting in financial pressure which makes local governments’ borrowing behavior a kind of helpless action.The risk of debt insurance and the risk of fiscal system are intertwined and constantly enlarged.On the premise of keeping the intensity of tax reduction policy unchanged,we also need to consider the unbalanced pressure transmission mechanism caused by the current financial system,and establish a scientific cost-sharing mechanism,income distribution mechanism and compensation mechanism.To prevent the positive correlation between tax reduction and debt borrowing,it is necessary to establish a mechanism of reducing expenditure and internalize risk in the transmission of revenue,expenditure and debt.Fourthly,the reform of Business Tax Replaced with VAT policy has weakened the extent of domestic market segmentation.To a certain extent,the tax reform policy has received good results in stimulating the vitality of the micro bodies,promoting the division and deepening of the industry,and giving full play to the scale effect of enterprises.It affirms the correctness of the government’s policy of giving way to the market and giving full play to the positive role of the market in the allocation of resources.Moreover,our robustness test results also show that this effect is stable,that is,the policy reform of Business Tax Replaced with VAT has indeed had a positive impact on the domestic marketization process.In further studies,it is found that there is a significant regional heterogeneity in the impact of the tax reform policy on the segmentation of the domestic market.Western region has the greatest impact,and lower impact on the eastern and western regions,showing a close relationship with the characteristics of the government and the market in the region.as well as the income distribution plan in the transitional period.The more backward the region is,the greater the impact will be.Finally,compared with the short-term financial pressure arising from the Business Tax Replaced with VAT,we should take the tax reform as an opportunity for institutional innovation.The tax reform vigorously promotes the reform of the supporting financial system of the central government,local governments and provincial governments,and accelerate the construction of a modern financial system including the modern tax system,the modern budget system and the modern tax sharing system.Therefore,it is of far-reaching and overall significance to greatly enhance the capacity of national governance.In a deep sense,on the premise of keeping the intensity of tax reduction policy unchanged,we also need to consider the unbalanced pressure transmission mechanism caused by the current financial system,and establish a scientific cost-sharing mechanism,income distribution mechanism and compensation mechanism.The key to prevent the positive correlation between tax reduction and debt borrowing is to establish a mechanism of reducing expenditure and internalize risk in the transmission of revenue,expenditure and debt.Taking into account the characteristics and development needs of China’s large country,targeted regionalization policy will become necessary to further promote the process of unification in the domestic market.At the same time,we should not only promote the positive role of market participants in the market,but also promote the cross regional flow of resources,reduce the regional disparity and improve the efficiency of resource allocation on the macro level,which will help to weaken the degree of segmentation in the domestic market and further promote market integration.That will be positive for the construction of the socialist market economy.The innovations of this dissertation are as follows.First of all,we take China’s largest developing country in the world as an example to test the actual effect of the major tax reform.Most of the existing literature focuses on the impact of tax policy adjustment on fixed asset investment or R&D expenditure of enterprises in developed countries.There is less literature on developing countries as an object of study,and empirical research on the effect of tax policy or tax system change is even more scarce.Secondly,from the perspective of research content and research,this dissertation explores the local government’s response to financial behavior in the reform of fiscal system from the perspective of the change of vertical fiscal distribution relationship caused by tax reform.This dissertation links tax system reform with financial system and local government debt behavior,and then explains the financial system motivation behind local government debt behavior.Whether tax system reform(tax reduction)causes and to what extent the change of local government financial pressure depends on the established intergovernmental fiscal redistribution relationship.It also provides an explanation of local government debt inflation in theory.Provides evidence of the relationship between tax cuts and fiscal pressures and their responses.Finally,from the perspective of policy revelation,the research work has provided an important foundation and inspiration for the tax reform,tax reduction policy and local government behavior.Business Tax Replaced with VAT should not be simply regarded as a tax reduction policy or a tax reform policy.It has the financial and economic effects of pulling the whole body.Financial behavior linkage and reform response,coordinated promotion of financial mechanism design and financial system innovation.