The Vat Reform Impact Studies, Investment In Fixed Assets Of The Enterprise

When the tax system was reformed in 1994, for the consideration of domestic economic conditions such as the requirement of controlling investment scale, lack of fiscal revenues and tax burdens of enterprises and so on, the government carried out the production value-added tax system (VAT).Production VAT plays an important role in Chinese taxation system since its introduction to China, however, the economic conditions have experienced great changes since then, the contradiction between the Productive VAT and the operation of economy is becoming increasingly serious.China has launched the Switch from Production-type VAT to Consumption-type VAT in three Northeast provinces in 2004 with the purpose of encouraging investment. The transformation of VAT brings in great significance to value-added tax regulation and eliminating double taxation.This paper gives theoretical analysis on the VAT transformation in the Northeast China and empirical analysis on its results. Adopting the neoclassical investment model and using panel data of 280 firms from 1999 to 2007, we find that the reform has exerted positive effect on firms' fixed assets investment which is distinct among different industries. We also find that the burden of enterprise income tax has far less significant influence on firms' investment behavior compared with VAT.At the end of this paper, it puts forward relevant strategies and advices for policies with regard to the transformation of VAT, including relevant supplementary measures. We hope to offer some helpful advices for the nation-wide VAT transformation through this research.