Taxation On Financial Services

The main purpose of this thesis is to discuss how to levy tax on the supply of financial services. Refer to other countries which have adopted the Value Added Tax (VAT), almost all types of financial services supply are subject to VAT. In China, however, supplies of financial services are subject to Business Tax (BT) since the 1994 tax reform after which BT system and VAT system have been implemented in parallel. Compared with VAT, the key feature of BT is the cascading effect. China's practice is inconsistent with the international practice, meanwhile it adversely affect the China financial market's development and the competitive statue of Chinese financial institution. The analysis in this thesis is based on consumption-type VAT principle. For theoretical rationale, the tax base of Consumption-type VAT is actual consumption which will not result in economic distortions. From the perspective of practice, most countries choose consumption-type VAT or develop their tax system toward it. At the end of 2008, the transition from production-type VAT to consumption-type VAT was completed in China. The basic view of this thesis is that the current BT system will be replaced by a unified consumption-type VAT system soon or later which will cover all the goods and services supplies. Therefore, it should be very useful and valuable to analyze how to tax on the supply of financial services under consumption-type VAT principle.