The Effects Of "Business Tax Replaced With VAT Reform" On Firms' Industrial Division

As one of the most important tax reform recently in China,“Business Tax Replaced with VAT Reform”was carried out firstly on January 1^st,2012 in Shanghai,and ultimately has expended to the whole country including the last 4 industries on May 1^stt in 2016,which marked that“Business Tax Replaced with VAT Reform”has fully succeeded.“Business Tax Replaced with VAT Reform”was used as one of most significant measure in supply-side structural reform to help spawn new industries,as well as promote industrial upgrading.Using input-output table data of 42 industries in China,this paper calculated and analyzed the industrial interconnection between services and their upstream industries and matched them with the data of listed companies from 2011 to 2017,using difference-in-difference?DID?identification.Firstly,the article briefly introduced the background of“Business Tax Replaced with VAT Reform”policy,then it analyzed the mechanism of how Business Tax Replaced with VAT Reform affects Industrial division of the companies in services industries and proposed two hypotheses.When it comes to the empirical part,this paper set up a dummy variable called Business Tax Replaced with VAT Reform to companies according to implementing reform or not;it has also introduced an interaction term which is the product of Business Tax Replaced with VAT Reform dummy variable and the variable named Industrial interconnection.Next,it used DID model to analyze their interaction.Then this article gained the conclusions as following:?1?It is found that Business Tax Replaced with VAT Reform especially all industries'reform has signally promoted industrial division of services industries,which came from the industrial interconnection between services industries and their upstream industries.The higher the degree of industrial interconnection,the more significant the effect of industrial division brought from Business Tax Replaced with VAT Reform.?2?The results revealed that step-by-step reform by industries and regions has badly weakened the effect of industrial division.?3?The results showed that the effect of the reform on different types of service industry companies behaved quite different,in which service-oriented companies and resource-dependent companies were significantly affected.Finally,this paper has put out some advice,such as the government had better simplify the different levels of tax rates of relevant industries,and use simple taxation method for those industries with low industrial interconnection.