Research On Effects Of Turning Business Tax Into Value-added Tax On Financial Allocation

The reform of revenue-sharing financial management system began in1994, Chinaformed a tax system based on turnover tax and income-based tax gradually.Meanwhile, as themain taxes of turnover tax, VAT has become the biggest taxes in China. It plays an importantrole in improving the "two proportions" and the ability of the central government’smacro-control. The reform of VAT’s type makes the production-based VAT turn intoconsumption-based VAT in2009, it allows the purchased fixed assets to be deducted andmakes the enterprises reduce the tax burden, promotes social specialization and tertiaryindustries integration. However, there are many drawbacks when the value-added tax andbusiness tax coexist, making the VAT reform is not complete and affecting the development ofvalue-added tax system. Thus, making the VAT turn into business tax can promote tax reformand make the economy’s development in a sustained, rapid and healthy way, and this reformwill have a significant impact on the financial allocation, especially the local government’sfinancial allocation. Resetting the distribution of financial resources becomes the key topromote the reform going on smoothly.This paper is based on the theory of fiscal decentralization, the optimal tax theory,analyzes the current situation of the central and local financial allocation. Then, the paper isbased on the input-output table of the year of2007, estimates the effects of the reform, andconcludes to a view that industries’ tax burden decreases a little, service industries’ tax burdenrises and falls unusually and its tax revenue decreases; at the same time, the paperre-calculates the VAT’s sharing ratio based on the data of2011.Finally, under the principle offinancial resources and powers to match, drawing on international experience, put forwardsuggestions as to adjust the pattern of distribution of financial resources: having a correctunderstanding on the reform; enhancing the powers of the central government and makingexpenditure responsibilities of the central and local governments clear; having a cleardivision of labor between government; establishing property taxes and resource taxes as themain local taxes of the local government; considering turning business tax into VAT as anopportunity to improve the tax system further.