Research Report On System Design Of “Business Tax To VAT” Reform On Real Estate Development Enterprises

“Business tax to VAT” reform is an important measure of tax reform. The Central Committee proposed to expand the scope of VAT to the industry of Construction, Real estate, Finance and Life services by the end of the twelfth Five Year Plan. However, as the main part of the real estate industry, the tax burden of real estate development enterprises is mainly affected by the tax rate and the deductible of costs. In addition to the tax rate, the discussions mainly focus on the deductible of land, the potential influence from the “Business tax to VAT” reform of Construction industry and Finance industry.This paper studies the system design of “Business tax to VAT” reform in real estate development enterprise using the method of theoretical analysis and research study. Firstly, theoretical analysis focuses on the analysis of deductible of costs of general taxpayer, in order to estimates the level of value-added tax and enterprise income tax. It is found that both of them are likely to rise or decrease, which are subject to the tax rate of VAT and the deductible of costs. In addition, there exist a suitable value added tax rate to balance the tax burden of VAT and corporate income tax.The research study is based on 2 real estate development projects(A&B) that has completed the liquidation of land value added tax. Based on a series of assumptions(Assumption1:the cost of land can be deductible with the ratio of 11%; Assumption2: the VAT rate of construction industry is 11%; Assumption3: the interest expenses cannot be deductible),the results are as follows: the deductible input tax accounted for the proportion of the cost of business are 9.72% and 9.39% respectively, far below 89.29%; if the sales of housing suits for the 11% VAT rate, the overall tax burden of the two projects are 4.43% and 4.34% respectively. However, if the VAT rate is 13%, the results are 6.31% and 6.22%; the VAT rate should be raised to 17% if cancels the land value increment tax in the future.Therefore, the author proposed the tax rate of 11% is applicable to real estate development enterprises, while the cost of land and construction and installation expenses can be deductible with the rate of 11%.