The Research Of The VAT System Reform Of The Insurance Industry In China

The insurance industry plays a significant role in the Reform and development of the economics. Under the circumstances, the tax policies have an important influence on the development of insurance industry. At present, the insurance companies are levied by the business tax. As a result, insurance companies have to deal with higher tax burden while they can’t credit the VAT from the upstream part. In2011the ministry of finance and the state administration of taxation issued the "pilot program from the business tax to the value-added tax". Due to some special characteristics of the insurance products, the reform process find it difficult to carry out the process about the insurance industry. As part of the modern service industry, whether the insurance industry should be included in the VAT system is controversy. By analyzing the relevant theories and the international practice, the article tries to illustrate the VAT reform of the insurance industry, including the mode selection, the system design, as well as the difficulty in the system design and the solutions.The current literature at home and abroad shows different opinions on this issue. Some scholars believe that VAT system plays better role in the system because it reduces the enterprise insurance tax burden in the intermediate links. But some others think that we should not impose value added tax on the insurance industry. However the current literature also has some disadvantages. First, a large number of literature select the financial industry as the research object, which focus mainly on the bank business. However there exist huge differences between the bank business and the insurance business. Second, there lacks deep research in the field of the value-added tax development in China. The differences between the Chinese insurance industries with other countries are seldom shown in the literature. Finally, the quantitative study of the issue is rare,In this article, the research methods are combined with the analytical tools and methods of finance, insurance and other fields. Through the quantitative analysis and the qualitative analysis, the article combines the tax policies and the insurance industry development in the research. In the qualitative analysis part, the article uses international comparison method, literature analysis, and historical analysis. And in the quantitative study part, the article uses the data analysis, trying to provide some support for the constructing the policies.The article is divided into seven parts. The first chapter is the introduction, which gives a view of the research background and research object in this paper. As there are many different concepts about the tax, the definitions are involved in the chapter. After that there is a review of the existing related literature at home and abroad.In the end, there are the research ideas and research methods, as well as the innovation and deficiency of this article.The second chapter mainly focuses on the theory of the turnover tax system of the insurance business. First of all, the chapter illustrates the basic theory of the turnover tax system, which is followed by the detailed discussion of the business tax and the VAT. Then the article shows the advantages and disadvantages of the two systems in the insurance industry. Especially, VAT tax mode according to the insurance industry is deeply discussed in the chapter, which provides a good base for chapter five.In the third chapter, the article compares and analyze the international practice about the turnover tax system in the insurance industry. It summarizes the business tax system, value-added tax system for the insurance companies in different countries. From the view of tax rate, tax base, tax deduction, and other factors, the article gives an all-around view of the turnover tax system for the insurance companies. In the last section, the article use the data from the international practice, trying to find a connection between the insurance industry and the choice of the tax system.The fourth chapter mainly discusses the necessity of the VAT reform for insurance. First, the chapter introduces the current turnover tax system for the insurance companies, which is the business tax system. At the same time the chapter discusses the background of the VAT reform process in China. In addition, the chapter compares the turnover tax burden on the life insurance companies, casualty insurance companies, and commercial Banks, holding the view that the business tax burden is too high for the insurance companies. Finally, the chapter discusses the necessity of VAT reform in the insurance turnover tax system. In the fifth chapter, the article discusses the framework of the VAT system for the insurance companies. First, it talks about which pattern and mode we should use in the insurance VAT system in China. After the comparison of the EU mode and the New Zealand mode, the article holds that it will be more appropriate to use the EU mode as the basic pattern in China, and make some adjustment to the pattern. Then the article deals with the specific insurance VAT system in China, including the division of the insurance business, as well as some suggestions about the supervision in the system.Chapter six mainly deals with the measurement of the insurance VAT reform. Based on the pattern discussed in chapter five, the article uses the existing data to simulate the change of the turnover tax burden for the insurance companies. First, by comparing the loss ratio in China and in other countries, the article comes up with the VAT in-put credit rate, which is used in the non-life business. Then it uses the in-put credit rate to simulate the tax changes for life insurance and non-life insurance respectively.In the last chapter, there are the conclusions for the article. The article argues that it is necessary for the insurance industry to change from the business tax to the VAT system. Secondly, this paper argues that the EU mode should be selected as the appropriate pattern for the insurance VAT system in China. The non-life insurance business should be taxable under the VAT system with different input tax induction credit, according to different types of the business. While the life insurance business should use the zero-rate pattern with the input credit. In the end, it will take time to conduct the reform process. It suggests that the practice should be taken gradually and revision should be done. Also the pilot regions should be selected before the reform is conducted generally.The innovation of this article is shown as the combination of qualitative analysis and quantitative analysis. By giving full consideration to the particularity of the insurance business, the article discuss the insurance VAT system in aspects of the taxpayer, tax scope, tax rate. The deficiency of this paper lies in that, as the data acquisition is difficult, it will be difficult to give an accurate measurement on the change of the tax burden. Especially the changes in the aspects of the social welfare effect, the tax changes and social effect. It will be worthy of the further study.