The Research Of Tax Institution Change: From Indirect Tax Institution To Direct Tax Institution

When we inspect the perspective of many countries'tax institution, we found that there's a high level relationship between countries'tax institution and its living level. Low-income countries execute indirect tax institution and high-income countries carry out direct tax institution. The income level is higher then direct tax has more portion in the tax revenue. The traditional view believes that the difference is due to the different income levels lead to different ability to pay tax. In fact the high-income level is only a necessary condition but not a sufficient condition to implement direct tax institution. The difference of ability to afford tax can not explained why developed countries choice direct taxation rather than high rate indirect taxation. This paper uses the theory of institution change to explain the trendency that high income level nations evolute from indirect taxation to direct taxation system. Direct taxation compared to indirect taxation system can reduce distorting the allocation of resources and improve the equitable distribution of income and encourage investment, savings, labor and accumulation of human capital and promote technological progress and the improve of the constitutional aspects of a comprehensive advantages. These advantages can not be brought into full play in low-income condition but be effective when the level of income improves. The indirect tax system has natural advantage in cost and execute effective .So,the net revenue of indirect tax institution is bigger than the net revenue of direct tax institution when the income is low.Which makes developing countries choice the indirect tax institution.Contrast, the net revenue of indirect tax institution is smaller than the net revenue of direct tax institution when the income is high.The gap between the direct tax institution and indirect tax institution grows with the economy develops.The gap is the revenue of institution change. At the same time the cost of reforming is decreasing.When the benefit of tax system evolution over its costs, the reform is inevitable. Which has determined that the developed countries execute direct taxation. China is at the stage of economic take-off.The income level raise rapidly while the structure of tax institution keep the indirect tax system.it doesn't adapt the economy growth.We should acceleratet the progress that evolute to direct tax system in order to meet the needs of economic development.