Replace The Business Tax With A Value-added Tax In The Frame Of The Public Financial System Adjustment

The pilot regions to replace the business tax with a value-added tax have been extended to anationwide. Replacing the business tax with a value-added tax is imperative. The reform will affect theentire tax situation. It is not only a big challenge for the current value added tax system, but also defiancefor the business tax which is the main local tax.The reform will put forward new problems for the financialallocation system of existing. During the reform process, we should pay close attention topossible problems involving the interests of local government and financial risk, and ensure the reformprocess can move forward smoothly by various means. We should not only ensure the local governmentwill actively cooperate with the reform, but also guarantee the economy can get long-term developmentwhich will not influence the ability and quality of local governments to provide public services.The reform of tax system in1994is a transitional policy and will leave many problems in theimplementation process including historical issues and new problems encountered in the new period. In thecurrent, our country must pay attention to these problems in the implementation of replacing the businesstax with a value-added tax. On one hand the reform will not be affected by the historicalproblems and result distort, on the other hand will help to solve these historical problem. The final purposeof this reform is achieving win-win situation and helping healthy economic development under the premiseof both central and local government in maintaining financial stability. In the regard of thenecessity of reform, scholars have already reached a consensus, and have made full estimationand bold speculation about problems that may arise in the reform process. For the purpose of making thisreform more smoothly, this article tries to analyze the reform problems from a more comprehensive angleand proposes personal suggestion which include not only the recent measures but also long-termcountermeasures.This article first analyzes the internal reasons, the reform content and the positive meaning forpresent economic development of the tax system reformation in1994. This reform, provides an importantreference for replacing the business tax with a value-added tax and also tell us the new reform must runningin the fiscal decentralization system framework to better guide the practice of our country. We also find out a variety of problems which are found in Shanghai pilot, these problems in particularly should be paid moreattention to. Whether these problems can be solved successfully or not decides the success of the reform,we can ignore these problems. After that, this paper also push forward five initiatives to help us solve theseproblems in the long-term and to make this reform more beneficial to the people’s livelihood. These fivemeasures including the reform of tax rebates accounting methods, changing the value-added tax sharingrate, making the local tax system more perfect, strengthening the transfer payment and thelong-term development of the local economy. These five measures will mitigate the adverse situation oflocal revenues plummeted.In the process of reform, we can not ignore a series of problems which are caused by the reducedlocal government revenue. We should increase the share proportion of local government whilemaintaining the central government absolute leading position. Under the current circumstances, weshould adjust the VAT sharing ratio and refund mechanism to mobilize the enthusiasm of localgovernments. Two kinds of parallel tax system are so harmful for our economic development that reform isurgently needed at this critical moment. In order to put forward this reform more smoothly, we mustconsider all kings of questions and also think of corresponding solutions. According to the specific effect ofthe pilot reform, we’d better learn lessons and do a good job with the work in the transition period. Weshould ensure this great initiative contribute to the realization of ‘China Dream’ and rebuilding of harmonyfiscal.