Reflection On The Perfect Of China's Value Added Tax Law

Since the tax system reform in 1994, proceeding from the adaptation for the demand of market economy, referring to international practice, China has built up its VAT law, which has been playing an important role in promoting the development of China's national economy and the increase in fiscal revenue, owing to making full use of VAT's advantages, such as a neutral regulating means, fair tax burden, efficient incomes, rigid collection and administration as well as a kind of taxes conducive both to protecting homeland economy and to our enterprises' participating in international competition. However, sequent year's practice has witnessed a lot of disadvantages of VAT law, which is in great need of prompt improvement and perfect.The current VAT law adopts the production-oriented VAT, which at its initial stage played a striking part in collecting fiscal avenue and expanding employment, but now along with the rapid development of economy, the disadvantages of the production-oriented VAT has been getting so apparent that no longer can it keep abreast of the times. Not only is the production-oriented VAT detrimental to the development of foreign trade, the advance of technology, the optimization of industrial structures, the balance of regional economy, the specialization and collaboration of production, the imposition of taxes, the sustaining increase of state revenue etc., but it also disrupts the optimization of the enterprises' organization structures, weakens the function of the tax lever, breaks the tax credit "chain", increases the difficulty in tax credit based on invoices and leads to discriminatory tax burden among industrial and commercial enterprises.In a word , the hash realities demands that our country introduce consumption-oriented VAT in a planned way.According to the current VAT law, VAT payers consist of two categories: normal payers and small-scale payers. Tax computation method for payers makes theformer enjoy superiority to the latter, which in my view should be changed. The taxable scope of VAT is not prescribed in the current VAT law scientifically. On the one hand, the taxable scope of VAT is too narrow, which may make the tax credit chain disjointed easily, on the other hand, the boundary between the scope of VAT and that of Business Tax is not clear-cut, likely to lead to confusion. For the moment, the scope of VAT should be enlarged appropriately, and the administration of VAT's chain should be improved. In the long run, if conditions ripe, that part of Business Tax which is apt to be confused with VAT may be brought into within the scope of VAT collection.In addition, the current VAT law has established the tax credit system to compute the VAT payable imposed on normal tax payers, which has been playing a very important role in accuracy, promptness and tightness of VAT levy. Even though, many flaws can be found in it. The imperfect tax credit system, various tax credit vouchers and the disjointed tax credit chain have made tax burden shift and tax payment run off. In the meanwhile, in the perspective of the current VAT computation method, the more input tax payment is, the less tax payable will be, so increasing the amount of the input tax has become the major means of tax evasion and avoidance. It is very urgent that we improve the tax credit system and plug tax levy loopholes. In my opinion, following measures should be taken to ensure the integrity of the VAT credit chain. 1, Adhere to the use of unified tax credit chain; 2, Deduct VAT based on the special VAT invoices in lieu of invoices such as transportation expenses invoice, agricultural and sideline products invoice and waste and used materials purchasing invoices; 3, Reduce even cancel tax preference so as to restore VAT's original character: neutral tax; 4, Unify the criteria of the input and output tax confirming; 5, Strictly enforce tax collection and administration rules and crack down on the practice of artificially increasing the amount of the input tax creditable.