An Analysis On The Effects And Problems In The Reform Of Replacing The Business Tax With The Value-added Tax

Since the implementation of tax-sharing system reform in1994, there have been mainly two types of turnover taxes been deployed in China, namely the value-added tax and the business tax. As the economy expanded, the society evolved, the business tax alone and the simultaneous existence of business tax and value added tax have aroused serious problem of duplicated taxation. Thus, the smooth-running of economy, the equity of the taxation and the society have all been somehow hindered. The reform program to replace the business tax with a value-added tax has long been planned and discussed. It acts as part of China’s fiscal reform, and plays a crucial role in China’s structural tax reduction policy.VAT boasts its advantages in fairness as it characters with taxing the added value-to take away the input tax from the output tax. Sales tax, however, is levied on the business revenue with no deduction of costs or input tax. In that sense, the principle of tax cuts in the replacement of the business tax with a value-added tax runs as the elimination of duplicated taxation.Since its Pilot in Shanghai among "1+6" sectors, namely the transport industry and parts of modern service sectors, the reform program to replace the business tax with a value-added tax has grabbed scholars’attention and passion. Till now, this reform has been promoted nationwide and in industries include transportation with railway transportation, postal services, radio, film and television industries, etc. This paper intends to give an all-rounded view to the far-reaching and positive effect of this reform, as well as the tricky problems that have to be addressed in its further promotion. Based on the problems given, this paper tries to give line of thought on their solutions.This paper is sufficiently identified in five sections. The initial section introduces the background of this paper, the literature review, the thinking and researching methods and the main innovation and shortage of this paper.The subsequent section is the introduction of the main policies and processes of the replacement of the business tax with a value-added tax reform, on which the following discussion will be based.The successive section is an analytical reading of the positive outcome of this reform. From perspectives of tax system optimization, tax deduction, and economic structure, the optimization of tax system and the deduction on tax burden, as well as the adjustment of economic structure are fruits achieved in this reform.The following part analyses the problems in its promotion. Firstly, some problems have to be solved in its advancement in particular industries. This paper concentrates on industries like construction, telecommunication, and finance. Secondly,.this reform will exert influence on the in-effect taxation system. Thirdly, the reform will challenge the current tax collection and management system. Last but not least, the current VAT system still has flaws that can’t be neglected.The final section goes to the solutions to the problems given. Solutions are given on certain industries, the current tax system, the in-effect tax administration system and the value-added tax system.This paper gives a whole-wide view as well as an in-depth analysis of the reform of replacing the business tax with a value-added tax. Based on current circumstances, a comprehensive and objective reading of this reform will contributes to the successful implementation of this taxation reform, and thus, benefits the economy and society nationwide.