The Research On The Microeconomic Effects Of VAT Reform Pilot

Value added tax is firstly established in France in1979.And then two important reforms happened in1984and1993.In2009,it is transformed from production-based VAT to consumption-based VAT. Now,VAT has played an important role in our tax system and become one of the main taxes.Although VAT undergoes series of reforms,the scope of taxation of VAT just covers a small scope of industry.Most of the services sector is excluded.So the Chinese Ministry of Finance,State Administration of Taxation officially released the business tax levy VAT pilot program on November17,2011. It is the provisions that transportation and modern service industry will be included in the scope of VAT in ShangHai.In addition, the State Council on July25,2012decided that the transportation and modern service industry would be expanded to10provinces such asBeiJing,Tianjin, JiangSu, ZheJiang, AnHui, FuJian, HuBei, GuangGong,XiaMen, ShenZhen.Thus, VAT pilot has been implemented.The current research is mainly focused on the faced challenges of the VAT reform and a lot of the conclusions are based on the estimated analysis. It lacks of the support of the real data.This article uses the listed data of Eastern Airlines to analyse the microeconomic effects of VAT reform pilot. There are two aspects of innnovation in this article.On the one side, it summarizes the mode of current VAT.On the other side,it conducts research on microeconomic effects of VAT reform pilot by analysing the data of periodic reports of Eastern Airlines.At first,the article describes the two modes of the VAT briefly, goods taxed model and goods-labor taxed models. The goods taxed mode is that goods is subject to VAT and labor is levied by other taxes. Goods-labor taxed model is to be subject to VAT on the goods and labor.Now, most developed countries and some developing countries are using the mode.The VAT,in France, covers almost all the operating activities of the production of goods,services and sales.The comprehensive VAT is also implemented in German, VAT taxpayers including people engaged in the sale of goods and provision of services, as well as any person who are engaged in the activities of import.The goods taxed mode is mainly used in China.There are a lot of problems in China,such as the scope of VAT is too narrow, double taxation problem is serious,it hinders the development of the tertiary industry, the cost of tax is too high.So it is important to implement VAT reform.On the one hand, it can avoid enterprises duplicate taxation and reduce the tax burden of the service sector. The other hand, it helps to promote the adjustment of industrial structure, even change the mode of economic development. At the end of2010, Chinese service industry accounted for43%and the services sector accounted for34.8%, below the target of0.5percentage points,20percentage points lower than the world average.Secondly, this article uses the data of Eastern Airlines to research the micro effect of VAT reform pilot.The VAT pilot is implemented in ShangHai, transportation included in the scope of VAT taxation.The air transport industry is an important part of the basis of the transportation industry and national reserve strategic transport forces.Therefore,the air transport industry is regarded as the main research object in this article. As a listed company, the data can be got from the financial report in the Shanghai Stock Exchange, so Eastern Airlines is selected as the final research object.Theoretically, after VAT "expanding scope " pilot, the direction of change in the burden of circulation tax is affected by the proportion of operating revenue in the funds of enterprises purchasing a variety of goods, materials and fixed assets.The burden of income tax is closely related to the change of pre-tax profits in corporate.In fact,the burden of the turnover tax declines significantly and the income tax burden increases the overall tax burden of Eastern Airlines declines. Based on the two aspects of analysis, the VAT reform pilot reduces the tax burden and promote profits.At the same time,it promotes the long-term development of the enterprise and it is in urgent need of expanding the reform pilot to more areas of the country.Finally, this article evaluates the microeconomic effects of VAT reform pilot briefly. VAT reform pilot reduces the tax burden of the pilot industry turnover tax,especially promotes realization of profits in the pilot sectors as well as the development of modern service industry. VAT reform pilot makes it up for transportation, such as lack of internal deductible chain, and avoids double taxation, greatly reducing the tax burden of such taxpayers and promotes specialization. VAT reform pilot reduces the export price of our products, and enhances international competition. VAT reform pilot is of great significance for economic development. But to implement VAT reform pilot in other areas will also face a number of challenges,such as interests of the local government, reconstruction of the tax sharing system, re-division of the national tax authorities and responsibilities of the local tax authorities. These problems have a direct impact on the reform process.In the end, this article proposes policy recommendations to further improve the VAT reform pilot.It is difficult to implement the pilot in one step. Step-by-step implementation of the VAT reform is feasible. With the gradual promotion of reform, it proposes to re-adjust the relationship between central and local distribution, rational division of the regional tax benefits, the recommendations of the reform of the tax collection mechanism. Re-adjust the relationship between central and local distribution is from two aspects,improving the local sharing ratio and reforming local VAT tax return. VAT reform will lead to substantial reduction of local fiscal revenue, and improve local sharing ratio to ensure the financial resources of local governments to mobilize local government to promote VAT reform.The reform of local VAT tax return accounting method should be based on local tax burden and development. We can learn the rational division of the interests of the regional tax policy from Canadian. When the labor involves in inter-provincial VAT, it should be out of the tax before out of province.Reforming the tax collection mechanism will need State tax personnel to adjust and improve the level of tax management software system simultaneously, reduce amount of the local tax authority staff and classify them as state tax authorities, and ultimately get the merger of the National and Local. At the same time, it should improve the level of VAT system,especially facilitating the development of more efficient tax management software system. In this process, it is necessary to strengthen the professional training of the State authority staff and improve the quality of tax officials.