The Research On Expanding The Scope Of The Value Added Tax

Value added tax (VAT) is one of China’s main taxes. It has played an important role in raisingrevenue and promoting the efficient allocation of social resources. In1994, China began toimplement the production-type VAT, but with the rapid development of our society and economy,the drawbacks of production-type VAT gradually exposed. So our country made several reforms ofthe VAT system, finally in2009China began to implement the consumption-type VAT. But thescope of the consumption-type VAT was still narrow. Transportation, construction, post andtelecommunication, finance and insurance as well as other service industries were still not included.With the change of China’s social and economic development and national conditions, expand thescope of VAT is the major trend of VAT reform.This paper first introduces the development of China’s VAT system, and then analyzes thesituation of current VAT system. Before analyzing the necessity and feasibility of expanding thescope of VAT, this paper elaborates the problems of coexistence of VAT and business tax. This paperalso made empirical analysis of the changes of tax load after levying VAT on the transportationindustry and the impact of fiscal revenue after levying VAT on the service industry. Finally, thispaper presents the obstacles that may encounter in the reform process and recommendations aremade.Selling and importing goods, providing processing and repairing services are included in thescope of our current VAT system. The scope of business tax includes transportation, construction,finance and insurance, post and telecommunication, culture and sports, entertainment, services,transferring intangible assets and sales of real estate. The coexistence of VAT and business taxmakes several problems, such as tax loss, double taxation and affecting the upgrade of industrialstructure. So, in order to promote the upgrade of industrial structure and improve the tax system,expanding the scope of VAT is needed. The rapid development of our economy, the gradualimprovement of our fiscal system and the strengthening of the tax collection capacity has laid agood foundation for expanding the scope of VAT.Four listed companies of transportation industry and four listed companies of modern serviceindustry were randomly selected in this paper to do the simulation estimates. At the same time,simulation estimates also did on the impact of fiscal revenue of levying VAT on service industry.Expanding the scope of VAT may cause many problems, such as the re-allocation of revenuebetween the central and local government, reform of fiscal system, change of tax load of enterprises and so on. Therefore, this reform should be done gradually.