Evaluation Of China’s R&D Additional Deduction Policy

Because of the high risk of R&D process and the positive externality of innovative products,the actual R&D investment of enterprises is often lower than the optimal level of society.To address market failures and promote enterprise innovation,the government will adopt policy measures to stimulate enterprises to improve their research and development level.Among them,R&D additional deduction of tax incentives is one of the world’s governments commonly used means.Additional deduction for R&D means that an enterprise can add a certain percentage to the actual amount of R&D expenditure as a deduction for the calculation of taxable income.This policy directly reduces the cost of R&D investment for companies in the form of tax credits.According to statistics,in 2020,China’s research and development additional deduction policy tax reduction and exemption amounted to 171.3 billion yuan.The R&D additional deduction rate will increase from 50 percent in 2008 to 75 percent in 2018 and 100 percent in 2021.It is clear that the government continues to increase tax revenue and strive to promote high-quality economic development through innovation.Numerous literatures have found that the R&D additional deduction policy can improve the R&D investment and innovation level of enterprises.However,the existing research conclusions are limited to the fact that policies significantly promote enterprise innovation.However,the existing literature has not conducted in-depth discussion on more detailed issues such as the actual degree of policy preference enjoyed by enterprises,the influencing factors of the degree of policy preference enjoyed by enterprises,and whether the policy preference achieves the expected goals.In the absence of detailed policy data,it is difficult to deeply understand the implementation effect of the policy,and the research conclusions can provide very limited enlightenment on how to improve the policy.In fact,there are many factors hindering the implementation of this policy.For example,the scope of additional deductions allowed by the government is narrow,resulting in a low degree of R&D additional deductions enjoyed by enterprises;Since the process of additional deduction involves tax,science and technology management and other government departments,the operation efficiency of the executive subject and the professional judgment ability of the government personnel on the R&D project will affect the implementation effect of the policy.Since 2014.China’s A-share listed companies are required to disclose the "adjustment process of accounting profit and income tax expense" in the notes to their financial statements.The income tax reduced and exempted by enterprises due to the additional deduction policy for R&D will be disclosed here.Based on this,this paper can calculate the actual amount of R&D additional deduction for enterprises,and then conduct a large sample empirical test of the actual operation of China’s R&D additional deduction policy from a completely different perspective from previous literature.Using the data of 2500 listed companies in China from 2014 to 2020,this paper focuses on the following three aspects:(1)How high is the actual R&D additional deduction rate?How far does it fall from the legal standard?(2)If the actual R&D additional deduction rate is lower than the legal standard,it means that the enterprise’s R&D expenditure has not been fully recognized by the tax department.What reasons can be explained for this?(3)Is it scientific that the tax department does not fully recognize the enterprise’s R&D expenditure?What factors can significantly affect the identification efficiency of tax departments?In this paper,the above issues are discussed in depth from the level of tax policy formulation,tax department implementation and micro enterprise,which can help the practical field and academic field to have a deep understanding of the actual operation effect of R&D additional deduction policy.Specific research conclusions of this paper are as follows:Firstly,on average,the actual R&D additional deduction rate of enterprises is 67%of the legal standard,which means that enterprises still have a lot of R&D expenditure not recognized by the tax department.Tax law on R&D expenditure of narrow scope than accounting standards is an important reason for the actual additional deduction rate is insufficient.By dividing R&D expenditure into R&D expenditure recognized by tax authorities and R&D expenditure not recognized by tax authorities,it is found that both of them can significantly promote the innovation output of enterprises,but the elasticity of innovation output to the two types of R&D expenditure is 0.339 and 0.013,the difference is nearly 25 times.This means that the R&D expenditures screened by the tax department are of higher quality,which means that the tax department’s behavior of not fully identifying the R&D expenditures of enterprises is scientific.Secondly,the higher the quality of tax personnel,the more strict the identification of R&D expenditure,thus reducing the additional deduction rate of enterprises.However,the RMS reform of the tax department can significantly increase the R&D additional deduction rate of enterprises.Furthermore,the higher the quality level of tax personnel,the stronger their ability to screen high-quality R&D expenditure,while the RMS reform increases the R&D additional deduction rate but does not damage their ability to screen high-quality R&D expenditure.Thirdly,the R&D additional deduction degree of state-owned enterprises and enterprises with R&D manipulation motivation is lower,but the R&D additional deduction degree of high-tech enterprises is higher;In addition,the nature of property rights and hightech enterprises have no influence on the ability of tax authorities to screen high-quality R&D expenditure,but R&D manipulation reduces this ability to a certain extent.Further analysis shows that the lower degree of R&D additional deduction of state-owned enterprises is due to the poor quality of their R&D expenditure,while the higher degree of R&D additional deduction of high-tech enterprises is due to the high quality of their R&D expenditure.Moreover,the quality level of tax personnel can alleviate the negative impact of R&D manipulation motivation on the tax department’s ability to select high-quality R&D expenditure.In this paper,the contributions include the following three aspects:(1)This paper expands the literature on the economic consequences of R&D addition deduction policy.Firstly,The existing literature on the economic consequences of the R&D addition deduction policy mainly realizes the research purpose by comparing the differences in enterprise behaviors before and after the policy,without using any real R&D addition deduction data.It seems impossible to get a deep understanding of how a policy works without using detailed data about the policy.Different from the existing literature,this paper obtained the data of R&D addition deduction at the company level through manual collection.Based on this data directly related to policy implementation,this paper can delve into many issues and effectively deepen our understanding of policy.Secondly,Different from the existing literature that only studies whether the R&D addition deduction policy will promote the R&D input and innovation output of enterprises,this paper collects the data of R&D addition deduction at the company level by hand,and systematically examines several basic issues closely related to the actual implementation effect of the R&D addition deduction policy from the three aspects of policy formulation,policy implementation efficiency and the characteristics of enterprises themselves.Thirdly,the research conclusions of existing literatures are limited to the promoting effect of R&D input on enterprise innovation.However,this paper,based on the perspective of tax department identification,examines the different influences of R&D input recognized by tax department and R&D input not recognized by tax department on enterprise innovation.Through in-depth discussion of the above contents,this paper evaluates the R&D additional deduction policy from a new perspective,which can deepen the understanding of the economic consequences of the policy in terms of research questions and research contents,and help open the "black box" of how to implement the R&D additional deduction policy.(2)This paper provides large sample empirical evidence on the actual implementation effect of the R&D additional deduction policy.Similar to the research theme of this paper,a small number of literatures have investigated the actual implementation of the R&D additional deduction policy,but most of them are based on small-sample questionnaire research.On the one hand,the representativeness of the conclusions drawn by these studies is limited;on the other hand,because the research questions can only be limited to the questionnaire content,many valuable research questions cannot be carried out.Based on a large sample of listed companies,this paper not only deepens the research content,but also ensures that the research conclusions are more representative.In addition,using different samples in different literatures,it can be found that there are certain differences in the degree of influence of policies on enterprise innovation.At the same time,there is still a lot of literature questioning the implementation effect of the policy.Through an in-depth investigation of the actual implementation effect of the R&D additional deduction policy,this paper can well explain the differences and even conflicts of these literatures and respond to the doubts about the implementation effect of the policy.Therefore,this paper is of great significance to improve this academic field.(3)This paper has important policy implications for the improvement of China’s R&D additional deduction policy.The conclusion of this paper can not only provide direct empirical evidence on how much room there is for improvement of the R&D additional deduction policy,but also help policy makers to understand how to improve the degree of tax incentives enjoyed by enterprises and enhance the operation efficiency of the R&D additional deduction policy.For example,tax authorities should more strictly enforce the current research and development surcharge policy,which can promote enterprise innovation to a greater extent.However,the tax department can also moderately relax the identification standards for R&D,which on the one hand can achieve the purpose of promoting enterprise innovation while keeping the statutory deduction rate unchanged,and on the other hand can reduce the cost of the tax department’s review of R&D expenditure.It is an important means to improve the effect of tax policy implementation to continuously promote the RMS reform.Strengthening the human capital investment to tax personnel can not only improve the operation effect of tax policy,but also narrow the difference of the operating efficiency of the same tax policy in different regions.Finally,it is still a work that tax authorities need to focus on to strengthen the examination of companies suspected of R&D manipulation.