Simplifying The Vat Rates In General Equilibrium Economy:The Case Of China

As a major refonn in current fiscal and taxation system in our country,the comprehensive transfomnation from business tax to value-added tax(VAT)on May l 2016,is a key measure of structural tax cuts,and is also a major measure for stabilize growth and adjust economic structure,which would have a great influence on macro economic and social development in our country.From then on the value-added tax rate has increased to four grades,that is 17%,13%,11%and 60%.On April 28.2017,the ministry of finance and the state administration of taxation jointly issued notice about simplifying tax rate of VAT,which declared that the value-added tax rate will decrease to three grades.that is 17%,11%and 6%,means from July 1 that will cancel the 13%low tax rate of VAT.In theory.on the one hand,the multi tax rate of VAT is not conducive to the tax collection and administration of tax authorities,but it will also increase the tax payer's tax costs.On the other hand,the existence of different tax rates will affect the relative prices of different goods(or services)artificially,thus distorting the behavior of market players,resulting in economic efficiency losses.From national tax practice,the grade of VAT rate of most countries in the world is three at most what's more the proportion of states that have chose the same tax rate of VAT presents a tendency of increasing,so which could give full play to the VAT tax neutral advantage.As a result,the tax rate simplification will be the necessary choice for China to further promote the reform of VAT.The paper refer to the standard CGE model built by xin zhang(2010),ye chen,etc.(2010),use the 2012 China input-output table and national economic accounting system data,establish a social accounting matrix.by means of the computable general equilibrium(CGE)model to study the effect of the transformation from business tax to value-added tax(VAT)and the value-added tax rate simplification mentioned above on macro-economic and public welfare.In addition.the paper also designs two simulation scheme of the value-added tax rate simplification.one of the scheme is”a standard rate + a preferential tax”,another is the whole industry use a single rate.Through the analysis of the four simulation scheme,we can get the empirical analysis conclusion:First,the value-added tax rate simplification is conducive to exploit the advantages of VAT being "neutral" to.the full,also conducive to promote real GDP.especially the latter two simulation scheme have social welfare pareto improvement effect.Second,the value-added tax rates should not set too high,otherwise,which may lead to increased public welfare losses.Therefore,xwe suggest that the govemment should further simplify the value-added tax rates in the future,so that,the market would play a decisive role to allocate the resources.and consider to reduce the standard rate(17%)of VAT,so which could effectively reduce the public tax burden and improve the whole social welfare.