Study On Vat Legislation Reform Of The Financial Sector

The financial sector is an important part of modern service industries, which is related to people’s livelihood. It includes finance and insurance. Tax legislation has played a pivotal role to promote the development of modern service industry. At present, China imposes business tax on the financial and insurance industries. Business tax has the advantage of single tax rate, simple tax base, and convenient administration. But with the development of social and economic, double taxation defects of business tax increasingly prominent. For the financial industry itself, the tax burden of the financial industry is too high, which becomes a bottleneck restricting its development; For the tax structure, the financial services industry are not included in our current system of VAT deduction which undermine the integrity of the chain of VAT deduction, contrary to the principles of efficiency and fairness of tax revenue. For this reason, the VAT legislation implementing financial sector reform is imminent.VAT (value-added tax) is a turnover tax which use the value added of commodities (including taxable services) in the transfer process as a tax levied based. Since it practiced in France for the first time, the VAT rapidly expanses in the world. In China, we began to research since 1979, to practice since 1980, has gone through the three stages of the establishment, transformation and expansion. VAT is a regressive tax and has the neutral characteristics. Equitable principles of tax requires different tax rates on the system design level, set low tax rates for the necessities of life, and even tax-free, to overcome its regressive characteristics, and efficiency principle of tax requires a single rate as much as possible on the system design level to show the neutral characteristics of VAT. For the financial sector, practicing legislation reform of using the VAT instead of business tax is essentially the choice between equity and efficiency, to find a balance point.Stones from other hills may serve to polish jade. VAT legislation reform of the financial industry in China is still in the stage of the prospective research, but in some countries and regions of the world, it has been practiced and explored. Such as:basic tax exemptions in the EU, special method and fixed input tax recovery method in Singapore and Australia, insurance of VAT Model in New Zealand. VAT tax of the financial sector continues to be corrected, develop, and even innovation, become more and more precise. It provides a useful idea for the design of related systems, and points out the direction of reform.In our country, it is the trend to impose value added tax on the financial sector, to use the base of VAT to replace the base of business tax, but it faces the theoretical and technical obstacles that special nature of the financial industry and modern VAT collection methods hardly compatible. In theory, VAT is a consumption tax, and the tax base is consumption, but on the definition of consumption, it is controversial. The nature of the financial industry is engaged in the intermediation of funds, whether the financial services have the nature of consumer, it determines whether the financial sector can put into the VAT tax base. I believe that financial services have the nature of transferring funds, but it does not mean that it does not consume economic resources. Service itself exist cost; the cost itself represents the consumption of economic resources, and therefore it should be the consumer, and it can be included in the scope of VAT levied. Technically, the financial business is complex. The core business and ancillary businesses coexist. Core business mainly refers to the lending business, with hidden charges, no definite characteristics; these characteristics determine the difficulty of determining value added. Meanwhile, China’s current VAT tax deductible way is the invoice method, how invoiced under this Act is another problem. From the administration and compliance costs, the characteristics of hidden charges and VAT tax deductible invoice method under the law difficult to reconcile the financial industry, faces enormous technical hurdles, the relative maturity of the existing VAT tax method in the financial industry can not show their strengths, and it is difficult of the VAT legislation reform in the financial sector.Combined with the actual situation of China’s value-added tax collection and management system, learn the theory and practical experience of other countries, I think:VAT legislation reform of the financial sector is an inevitable trend, but it can not overnight, and it need to be gradual. From the aspect of legislation authority, it is the trend of putting financial industry rules into a unified VAT legislation. The National People’s Congress has the power to make a unified VAT law. From the aspect of ownership jurisdiction, it is the only way that state tax development has the power to administrate the VAT in the financial sector. From the aspect of tax basis, we can take a two-step reform program. Early stages, we can divide the financial services into the core business, ancillary business and export business. We can use tax exemptions, tax rates and zero taxation policy, while strictly limiting the scope of tax exemption. The latter stages, we can introduce cash flow method and anti-total reduction method to make the tax base adequate, tax rate reasonable, and VAT deduction chain integrity, thus truly balance the interests of efficiency and fairness.