Value Added Tax Rebate Policy And Enterprise Investment

In recent years,the implementation of the goal of "reducing taxes and fees" has been one of the priorities of our government.Against the backdrop of deleveraging,the tightening of credit policies has led to increasing financing costs for enterprises,and "reducing taxes and fees" has become an important measure to revive enterprises.Since the reform of the taxation system,improving the VAT system has been one of the key objectives in reducing taxes and fees in China,including the introduction of the VAT retention tax rebate policy.VAT is the number one tax in China and its reform plays an important role in regulating economic behaviour.With the full implementation of the "camp reform",the size of the VAT retention credit has been expanding,and large amounts of VAT retention credits are commonly found in start-up enterprises and industries such as "high import,low sales".Excessive tax allowances can drain the free cash flow of enterprises and distort their investment decisions.The most direct impact of the VAT tax credit policy on enterprises is to increase their free cash flow,reduce their financing costs and alleviate their financing constraints,which in turn has an impact on their investment behaviour.By combing through the existing literature,in assessing the impact of the VAT retention tax rebate policy on enterprises’ investment behaviour,corporate financing constraints are introduced and the mechanism of the impact of the VAT retention tax rebate policy on enterprises’ investment behaviour is analysed from a theoretical perspective,and two hypotheses are put forward.Hypothesis 1: Other things being equal,the VAT tax credit policy has a positive incentive effect on enterprises’ investment.Hypothesis 2: All other things being equal,the VAT tax credit policy has an incentive effect on corporate investment by reducing corporate financing constraints.In the empirical part,this paper views the VAT tax retention rebate policy of Cai Shui [ 2018 ] No.70 as a quasi-natural experiment and constructs a double-difference model using financial data from the consolidated statements of listed companies in China from Q1 2017 to Q2 2019 to investigate the impact of the tax retention rebate policy on corporate investment in fixed assets,followed by benchmark regressions,robustness tests,mechanism tests Then,through benchmark regressions,robustness tests,mechanism tests and heterogeneity analyses,the impact of the VAT tax credit policy on enterprises’ investment in fixed assets is clarified.Finally,the following three conclusions are drawn: Firstly,the implementation of the VAT tax credit policy has a positive incentive effect on enterprises’ investment,and the findings are proved to be reliable and robust through five robustness tests: parallel trend test,propensity score matching,shortened sample period,reduced sample size,and exclusion of competition hypothesis.Second,through the theoretical analysis and mechanism tests in this paper,it is concluded that the VAT retention tax rebate policy promotes enterprise investment by alleviating enterprise financing constraints,and financing constraints are the main channel through which the VAT retention tax rebate policy exerts its policy effects.Thirdly,the effect of the VAT tax credit policy on enterprises’ investment behaviour is influenced by the ownership,scale and regional factors of enterprises.For the ownership factor,the VAT tax credit policy has a significant positive incentive effect on the investment behaviour of non-state enterprises,but not on state-owned enterprises;for the size factor,the VAT tax credit policy has a significant positive incentive effect on the investment behaviour of small-scale enterprises,but not on large-scale enterprises;for the regional factor,the VAT tax credit policy has a significant positive incentive effect on the investment behaviour of small-scale enterprises,but not on large-scale enterprises;for the regional factor,the VAT tax credit policy has a significant positive incentive effect on the investment behaviour of small-scale enterprises,but not on large-scale enterprises.For regional factors,the VAT tax credit policy has a significant positive incentive effect on the investment behaviour of enterprises in the east,but it does not have a significant effect on the investment behaviour of enterprises in the central and western regions.Based on the above empirical findings,this paper makes the following recommendations,in the hope that policy makers can continue to improve China’s VAT retention tax rebate policy,gradually achieve VAT tax neutrality,implement the goal of "reducing taxes and fees",and stimulate the vitality of market players.Firstly,the performance assessment of state-owned enterprises(SOEs)should be reformed so as to facilitate their more obvious response to tax policy shocks;secondly,it is suggested that the business environment for enterprises in central and western regions should be further optimised so as to drive enterprises to adjust their investment and business scale and promote local economic development.Based on the results of the empirical analysis and combined with the actual situation of the VAT retention tax rebate policy introduced in 2022,the following proposals are put forward: first,improve the fairness and effectiveness of the VAT retention tax rebate policy and increase enterprises’ independent choice.Secondly,improve the way the government bears the burden and ensure sufficient funds for tax refunds.Emphasis should be placed on the tax refund sharing mechanism,consideration should be given to setting up a special account to handle tax refunds directly,coordinating the sharing shares between the central and local finances,and effectively implementing the tax retention and refund policy.Thirdly,the taxation authorities should strengthen the prevention mechanism for tax frauds with tax credits.They will adhere to the principle of "first examine and then refund",make full use of tax data to monitor the amount of retained tax credits and increase the penalties for tax fraud.