Theory On The Transformation Of VAT And Empirical Exploration

In our country, the transformation of the value added tax (VAT) refers to the phenomenon that the productive VAT is being transformed into the consuming VAT at present. Compared with the consuming VAT, which bears universal significance, the consuming VAT, which is going to be carried out in our country, is of narrow calibers. It only allows enterprises to deduct taxes of purchases covered in the machines and equipments of newly added fixed assets in the corresponding year. In order to make the study on the VAT transformation have guidance towards the present and the future of our country, the VAT transformation discussed in the present paper belongs to the universal type of transformation of VAT. Research based on the definition of consuming VAT, naturally will take our country's national conditions into consideration. During the process when making empirical analysis on the feasibility of VAT transformation in our country, we utilize deduction criteria of two calibers for the consuming VAT. One criterion is that the deduction range of the fixed assets is only confined in the newly added machines and equipments of the enterprises in the corresponding year and the other criterion is that the deduction range of the fixed assets is only confined in the total newly added fixed assets of the enterprises in the corresponding year. The former type is the consuming VAT, which is going to be carried out by our country whereas the latter type is much more similar to the consuming VAT, which is universally carried out in the world. The difference between the two types of consuming VAT is that the taxes covered in the preserved fixed assets are not allowed to be deducted. The author thinks that the deduction range of the latter type of fixed assets is comparatively wider and thus it will become the consuming VAT carried out in the near future of China. As a consequence, the author gives separate expatiations on the two types of consuming VAT. In 1994 when the tax system was reformed, for the consideration of our domestic economic conditions and the requirement of controlling the scale of investment at that time and meanwhile for the consideration of fiscal revenues and tax burdens of enterprises and other factors, our country carried out the productive VAT. Since then 10 years has passed. During this period, the economic conditions in our country have witnessed great changes, which are mainly reflected as: with the gradual establishment of the market economic system, upgrading and replacement of the industrial structures and changes in the pattern of economic increases, the contradiction between the productive VAT and the operation of economy is becoming more and more serious. What is most conspicuous is that the taxes of purchases are not allowed to be deducted from the fixed assets, which directly prohibits the technical innovation in enterprises and increases the tax burdens of the domestic and foreign enterprises. After China joined WTO, with the decrease in the tariff level and with the cancellation of non-tariff rampart, this contradiction will become even more protruding. Thus it has been a consensus to reform the current VAT and this problem has aroused much attention from the government. At the end of October 2003, our central government put forward "Several Proposals on Implementing the Strategies for Rejuvenating the Old Industrial Foundations in the Northeast China" and also put forward "carrying out the reform of transforming the productive VAT into the consuming VAT preferentially in the Northeast". After that, the Third Plenary Session of Sixteenth Central Committee was held and agreed on "The Decision to Accelerate the Reform in the Socialistic Market Economic System". The "Decision" pointed out definite and specific goals for putting forward comprehensive reform in the tax system, which was going to be carried out in China in the following period Among those goals, the transformation of VAT has been considered as the one of the important issues in the future reform in the tax system. According to the deduction range of the consuming VAT to be carried out in our country, if we had carried out the transformation of VAT in 2002, the influence from the VAT transformation on the fiscal revenue in the corresponding year would have been RMB 63,000,000,000.00Yuan in the corresponding year and which was completely within the bearing capacity of the finance. As a result, with the experiment of VAT transformation in the Northeast China as the forerunner, there seems to be great realistic feasibility in gradually promoting the VAT transformation. Of course, there are still a series of problems and difficulties in transforming VAT. For example, we still need to make careful study on how to compensate the losses made in the process of VAT transformation on the fiscal revenue, how to grasp the chances to put forward the reform and so on. As for the theoretical basis for the VAT transformation in our country, the author thinks that it mainly includes the principle of neutrality and the principle of farness and efficiency. Moreover, if the consuming VAT complies with the reform direction of the market economic system in China and the...