The Influence Of Value-Added Tax Reform To Enterprise Finance

VAT reform has been advanced by the CCP Central Committee and should beimplemented during Eleventh Five-Year Plan. Before2009Production-oriented VAT hasbeen introducing, the input VAT within new purchased fixed assets was not allowed to deductfrom output VAT, the discontinuous deduction flow led to double taxation, preventedenterprises from investing and renovating fixed assets, with the development of our country’seconomic and social environment changes in recent years, it is quite necessary to reformProduction-oriented VAT. When the financial crisis had negative influence on economicdevelopment in our country, expanding domestic demand was high priority，as important partof a package of economic stimulus plan, on10thNoverber2008Premier Minister Wen Jiabaoratified and released newly revised The Interim Regulation of the People’s Republic of Chinaof Value Added Tax and other two Regulations, Consumption-oriented VAT wasimplemented from1stJanuary2009. Meanwhile at present VAT and Business Tax (BT)coexist in our country. Although BT plays an important role in local financial revenue, doubletaxation in BT area is becoming more and more pronounced as society development andindustrial division. The old Tax system restricted the development of tertiary industry, andwent against competition in global service market. After the transformation fromProduction-oriented VAT to Consumption-oriented VAT, VAT expansion is the key to ourcountry tax reform. On29thOctober2011State Council ratified BT levy VT pilot implementin the city of Shanghai transportation industry and modern service industry from January1,2012. The implementation of Consumption-oriented VAT and “BT levy VAT pilot scheme”do not only affect our country’s macro economy, also has significant impact on enterprises.These VAT reforms can relieve tax burden, and promote fixed assets investment and industryupgrade, it is good time for enterprises to develop business. As financial management, wehave to adapt to the new VAT system, and take full advantage and benefit from the newsystem; on the other hand we need to review the actual impact from tax reform.This article is composed of four parts. The first part introduces the basic knowledge ofVAT and the theory of VAT reform. The second part focuses on the influence on VAT reform to enterprises from theory perspective. The third part is base on the public data of BaoshanSteel during five years (FY2006-FY2010) we demonstrate the actual influence from fourperspectives of tax burden, fixed assets investment, return of shareholders and net cash flowfrom operation. Finally on the basis of mentioned research, recommendation regarding furthertax reform and enterprises countermeasure will be offered.The research in this Article turns out that Consumption-oriented VAT has significantpositive impact on steel industry, the new VAT system will help steel company to improveproduction efficiency, and promote competitive ability, and meanwhile energy consumptionand environment pollution can be eased efficiently. With regard to “BT levy VAT pilotscheme”, the analysis shows this transformation will make an impact on transportationindustry which tax burden will increase substantially.In the recommendation part, speeding up VAT reform is suggested, VAT should expandthe coverage and replace the BT finally.