The Effects Of Wealfare, Efficiency And Industrial Structure On The Transformation From Bussiness Tax To VAT

Now, the transformation from business tax to VAT is the central task of China’s fiscal policy. This paper attempts to use a computable general equilibrium model to explore the effects that may arise of residents’ welfare, economic efficiency and industrial restructure on different policy options of the transformation from business tax to VAT.Since the tax system reform on 1994, business tax and VAT as two major types of turnover taxes exist in parallel. After a period of practice, the shortcomings of the tax system becomes increasingly obvious, our country’s tax burden increase too fast. In order to promote the transformation of economic growth mode, reducing the downward pressure on the economy, structural tax reduction is imminent. The transformation from business tax to VAT to avoid double taxation and to clarify the turnover tax system. The transformation from business tax to VAT become an important means of structural tax cuts. Calendar year, fiscal surplus is also provided feasibility and operation of space for the transformation from business tax to VAT. The targets of the transformation from business tax to VAT is to reduce tax through open deductible VAT tax chain, increase the momentum of economic development, optimize industrial structure.At first, this paper discusses the theoretical mechanism of the effect of residents’ welfare, economic efficiency and industrial structure adjustment on the transformation from business tax to VAT. From the fundamental theorem of welfare economics demonstrates that the VAT will have increased welfare reform to improve efficiency and enhance the role of structural optimization, but the choice will affect the tax effects of policies. This paper introduces the equivalent variation (EV), compensation variations (CV), the net loss of consumer and industrial output as index proportion will be analysis in CGE models.Secondly, according to China’s national conditions, this paper build a static computable general equilibrium model(CGE) of tax. The industry is divided into one agricultural sector,22 industrial sectors,16 service sectors, the preparation of the 2010 Social Accounting Matrix (SAM,90*90) as the base of the model data, and use cross-entropy method to the balance sheet of the SAM. This paper use GAMS software programming simulation to calibrated parameters.This paper based on tax reform and the brewing tax reform pilot program, set up four scenarios:the existing 2+7 expanding around with the different tax rate; the whole industry expanding around with the different tax rate; the whole industry expanding around with the service industry the same rate; the whole industry expanding around with the service and manufacturing the same rate. Model simulation results show:From welfare point of view, the optimal solution is the industry to expand around with the same rate; from an efficiency point of view, confining the scope to expand the tax increases, the greater the loss of efficiency at the same rate services, reduce efficiency losses, service Manufacturing at the same rate, increase efficiency losses; From the perspective of industrial restructuring, the best solution is to expand around the industry to maintain the original differential rates.Finally, the article gives further deepening policy recommendations of VAT reform.