Taxation Effects And Institutional Analysis Of China's Banking Industry

This thesis is intended to examine the effects of taxation on behavior of banks, and explore reforms of tax system for China's banking industry. The whole thesis includes two parts: theoretical study and institutional analysis.In Part one, based on modern theory of financial intermediary, the thesis examines the effects of taxation on the means of finance, and analyses how the tax system influences bank's loan behavior.As for the effects of taxation on the means of finance, under the condition of complete competition, if bank's costs of providing transaction services for customers are sufficiently small, then a small tax on deposits interest income does not affect the choice of depositors (or investors) between deposits and direct investment; A business tax on bank loan interest income leads to tax incidence, and thus raises loan rates and induces some entrepreneurs to switch from bank loan to direct financing; A tax on banks' income also raises the loan interest rate, and hence reduces the demand of loans.As far as the effects of taxation on bank's behavior are concerned, the assumptions of our analysis include China's prevailing interest rate control system, and commercial banks' goal of profit maximization. Under these assumptions, and supposing volumes of deposit and loan as choice variables, using the comparable static method, this thesis examines the impacts of business tax and enterprise income tax on optimal loan respectively. The result shows that, a business tax affects the optimal loan of commercial banks, and distorts banks' behavior, however, enterprise income tax does not have such effects. Thus, compared with business tax, enterprise income tax has the advantage of neutral nature.In Part two, the thesis compares tax system structures of main countries, and analyzes the trends and reasons of revenue structure in China's banking industry. After comparing revenue structure between state-owned commercial banks and joint-stock commercial banks, it shows that the percentage of revenue from business tax is higher in the former sort of banks than in the latter, and vice versa for enterprise income tax. Such a specificity of revenue is a reflection of the fact that profitability of state-owned banks is inferior to that of joint-stock commercial banks.Based on relevant data of China's banking industry, the thesis analyzes the relationship between changes of banking taxation policy, especially changes of business tax, and banking deposit gap. The result shows that with the increase of business tax rate, banking deposit gap increases, and with the decrease of business tax rate, banking deposit decreases. The result is consistent with that of theoretical study.The adjustment of banking tax policy affects taxation burden of banking industry. After examining tax policy changes of banking industry over recent years and the impacts of banking taxation burden on CAR (capital adequate ratio), the thesis analyzes banking taxation burden further from two points of view. From the view of inside system, with the gradual transition of China's economy, "weak public finance" and " strong banking industry" were formed. "Weak public finance" resulted in a pressure on revenue, and in the process of reforms this pressure turned to "strong banking industry", this is the inside system reason for heavy taxation burden of banking industry. From the view of outside system, the existence of non-formal interest income hi banking industry leads to loss of interest income, either as out-book income for banks or personal income of insiders who have the rights of credit allocation. These non-formal income notonly results in the problem of tax evasion, but also decreases banks' profit. This is the outside system reason for heavy taxation burden of banking industry.After the study of enterprise income tax and corporate governance of banking industry, we conclude that the way to resolve the problem of unreasonable pre-tax deduction lies in the reform of corporate governance of banks. As for the tax treatment of bank loa...