Incentive Effect Of Enterprise R & D Tax Policy

As the significance of R&D to long term economic growth being widely recognized, more and more countries try to use tax incentives to promote R&D levels of their countries. China has also adopted such a strategy and has stipulated a lot of governmental policies including tax incentives to encourage domestic enterprises to enhance innovative ability. In this situation, to China, studying the effectiveness of the tax strategy for promoting R&D is of grate importance.Based on the conclusion of domestic and abroad research, this paper studies the tax policy mechanism and incentive effect of R&D both in theoretic and empirical aspects. Firstly, this paper analyzes tax policy's incentive effect in R&D theoretically; then the data of thirty one provinces in China are collected to a empirical study to explain which factors that take effect and how much they take. The conclusion achieved: tax policies the government made in China now definitely has a positive incentive effect on R&D investment, but different kind of taxes play different roles, and among those, the value-added tax takes the most important incentive part.This paper proposes some suggestion to modify R&D tax incentive policy in order to improve the innovation in China, which contains: We should transform from only using income tax to both using income tax and value-added tax; increasing the degree of tax based preference; putting more emphasis on real R&D activities; considering the small and non-profitable companies fully and so on.