On Applying Tax Policy To Support Independent Innovation Of Enterprises

During the process of independent enterprise innovation, countries through out the whole world have all implemented various kinds of incentive tax plans, which are both required by actual needs and supported by fundamental theories. Western economists, such as Schumpeter, Solow, Samuelson, Nelson and Arrow, have all conducted profound researches about it from different perspectives, and they were followed by schools of New Classical Economics, Neoclassical Economics, and International School of Innovation System. American economists Nelson and Arrow were the first to apply the theory of market failures to technology innovation studies (Nelson, 1959; Arrow, 1962). They believe that there are market failures in the field of technology innovation, and therefore there are reasons for government to establish systems and make polices to support innovation. More importantly, there is a special need for government to build tax incentive mechanism to motivate enterprise technology innovation. New Classical economists claim that the reason for the existence of market failures in technology innovation lies in the three important features of technical innovation, which are externality of innovative benefits, indivisibility and uncertainty of innovation process. And these features of technical innovation provide theoretical basis for government interference into the technological innovation of enterprises, i.e., establishing and implementing tax policies to support enterprise's technological innovation. Government interference targets at shortening the distance between social and personal benefits, and correcting market failures. Recently, studies abroad on this issue has gained increasing popularity, mainly analyzing the level and meaning of innovative activities under the framework of Economic Growth. The significance of tax polices is limited under the framework of New Classical Growth. In the mid-1980s, the rising of Endogenous Growth Theory broke through the assumptions of New Classical Growth model, and consider technological innovation to be endogenous, which means that the government of a nation can use tax polices to influence the level of national R&D, the accumulation of human capital, management of enterprises, to motivate innovative activities and promote economic growth..Since the reform of economic system, domestic economic theories have conducted researches on independent innovation of enterprise and tax incentive mechanism. Especially after the reform of taxation system in 1994, this issue has become a significant topic in the field of finance and taxation and operating sectors. The focus of these researches is still on the incentive effects of the preferential policies of government taxation to enterprise innovation, and the ideas can mainly be classified into two groups, one is, through international comparison between our country and industrialized countries, to analyze the differences in the incentives of enterprise innovation caused by diversities in dealing with accounting specified by preferential tax polices. The other is, by means of statistical regression, to analyze the obvious effects of tax policies on independent R&D using the model of C-D Innovation Production Function. These two different study paths both lead to similar conclusions, which is that current preferential tax polices have only limited effects on enterprise innovation.The Central Committee of Communist Party of China's Proposal on Making the Eleventh Five-Year Plan for National Economy and Social Development, discussed and passed by the Fifth Plenary Session of the Sixteenth Central Committee, requires to enforce taxational, financial, and government procurement polices that support independent innovation, and since then, the studies of domestic economic theories on tax incentive mechanism for innovative development of enterprises have stepped into a new stage. Innovation, as a social practice with high returns and spillover effects, is also accompanied by high risks and demands much input. It is an essential request for tax allocation to implement supportive and incentive preferential tax policies on this kind of social practices. However, some ideological problems need to be clarified before implementing supportive preferential tax policies for enterprise innovation. For example, we need to be aware that independent innovation is not equal to technological innovation, while supportive preferential tax policy for independent enterprise innovation doesn't mean the same thing as current preferential tax policy for science and technology. Next, integration has to be done about the problems in current preferential tax policies for science and technology, and the thinking of integration is to emphasize the central role of enterprises on independent innovation, optimize tax structure for preferential tax policies for science and technology, realize the transition from a pattern oriented by direct preference to indirect preference, build a platform of fair tax policies to enhance independent enterprise innovation, drive the preferential polices on enterprise income tax to replace specialized system of preferences (SSP) with generalized system of preferences (GSP), construct a preferential tax policy system for science and technology concentrating on the R&D activities of enterprises. And then, docking is to be made on the foundation of integration, which refers to the coordination and connection between the preferential tax policy system for supporting independent enterprise innovation and current preferential tax policy system for science and technology after integration, to make a full play of the role of preferential tax policies for science and technology on independent enterprise innovation. In the end, establishing a system of preferential tax policies to support independent enterprise innovation is a huge social project of system engineering. The author holds that the development and construction of this project will not be accomplished in one move, instead, it requires actions from many fields, and the general idea behind should be: learn from the successful experiences of foreign countries in supporting independent enterprise with preferential tax policies, and according to the current situation in our country, under the clear guidelines of making preferential tax policies to support independent enterprise innovation, in accordance with the practical conditions of independent enterprise innovation in our country, on the basis of"docking"with current preferential tax policies for science and technology, exert great efforts to make a set of scientific and rational preferential tax policies. The state legislative branch should enact the Basic Law on Supporting Enterprise Independent Innovation, specify the targets, goals, principles, means, measurements, ranges, and procedures for examination and approval, and thus assure there are laws to abide by when the nation uses preferential tax policies to support independent enterprise innovation, and then related organizations including the Ministry of Finance and State Administration of Taxation should set preferential tax policies to support independent enterprise innovation according to the Basic Law, which is done as such: further implement preferential tax policies on motivating independent innovation for enterprises, accelerating the transformation of scientific achievements and updating facilities, actively support and encourage enterprises to develop new products, new techniques and new technologies, strengthen preferential polices including pre-tax deduction for enterprises'R&D input, combine the reform of enterprise income tax system with the reform of enterprise financial system, encourage enterprises to set up special funds for R&D, allow the equipment and machines for R&D to accelerate depreciation, assist enterprises to purchase advanced equipment and machines for R&D, and meanwhile, draw up preferential tax policies to support independent innovation of small and medium-sized enterprises on the foundation of fully implementing Law on Promotion of Small and Medium-sized Enterprises.