The Economic Effect And Policy Orientation Of Elevating The Value-added Tax Threshold

For a long time, the value-added tax is the largest tax among all categories of taxes in China, and it is also main tax of Chinese turnover taxes. Therefore, the value-added tax is of vital importance not only to safeguard the fiscal revenue, but also to keep trades in order. Chinese government raised the value-added tax threshold on November1,2011, which became the focus of the public. The VAT threshold is primarily a stimulus policy instrument for privately or individually-owned business. Under the background of financial crisis, Chinese privately or individually-owned business was badly influenced, so the policy of raising threshold aimed to reduce the burden of individually-owned business and to boost the development of individual economy. However, because the guide of this policy is not clear and the public are not able to know the tax law clearly, most think that the policy is for small and micro business. This paper clarifies the misunderstanding in the first part. Even though threshold is only a simple link of the complicated tax laws, with this tool we can find both how economic factors influence tax policies and how the fulfillment of tax policies reacts upon the economy. In the third part, this paper tries its best to enclose factors that provide support for the policy, to choose reasonable economic indices and to form a long-term mechanism of this tax policy. Through the analysis, this paper suggests the necessity of the policy from five aspects:economic development situation, individually-owned business tax burden, tax cost, fiscal policy and consumption. Then the paper indicates the advantages and disadvantages of the policy fulfillment with the data of Jinan. The main advantage is, according to statistics, that the policy has reduced the VAT of individually-owned business; the disadvantages are that burden of tax would skip high beyond the threshold, tax cost would increase and fiscal demand would not harmonize with the tax policy; the expected advantages, the growth of tax fund, is not conspicuous. To tackle these problems, this article proposes policy suggestion with domestic and foreign experience. Due to the complication of this issue, the suggestion is divided into two parts:one is the short-term policies which take temporary actions, while another is the long-term policies which take permanent solutions. I hope what I have done in this paper can be helpful to find out the solutions of value-added tax threshold problems.