Tax Compliance And The Research Of Tax Incentives Mechanism In China

From perspective of the government, tax revenue is an indispensable financialsource and also a fiscal method to adjust the economy. Since tax is the direct benefitshift from the people to the government based on the monopoly of the legitimate useof violence, so gain in one side means loss from the other side. And the differentinterest pursuit leads to multi level game play in the process of tax gathering.Tax revenue grows rapidly since tax reform,1994, in China and the averagegrowth rate is17.3%. The total tax revenue reaches7.739trillion in2010. However,low service quality, misplaced incentive and non-compliance are common in the taxgathering practice, which limit the improvement of the tax collecting environment.Firstly, the concept of tax compliance is introduced in this article, followed bythe analysis of the behavior of tax receiver and taxpayer based on the game theory.When both sides meet assumption of Rational economic man in the game theory,Prisoner’s Dilemma will appear among taxpayer, which will lead to higher tax costand finally affect the efficiency of the economic system. By applying the game theory,the author takes into account of complete information and incomplete information,and ultimately concludes the equilibrium solution of the tax levied reaching Paretooptimal. This article suggests several ways to improve the tax compliance, includingstrengthening the legal awareness of the tax authorities, increasing penalty of rentseeking between taxpayer and tax authority, and promoting legitimate tax planning.Secondly, this article summaries the survey of tax compliance conducted in alocal company and also combines the result of other related survey regarding taxcollection, tax propaganda, tax service and tax compliance cost, conducting by bothnational audit office and tax authorities in other province. This article also providesthe current situation of tax non-compliance and the reason of that.Finally， the author provides a designed incentive system to improve taxcompliance. So called incentive system contains both positive incentive, such assatisfying taxpayer’s needs, improving credit rating system, and negative incentiveincluding strengthening law enforcement. The author introduces a tax amnesty policyto give tax evader a chance of self correcting. This policy not only improves taxcompliance but also lowers tax inspection cost and maintains a fair tax system.