Research On The Insurance Turnover Tax Reform Of China Under The Background Of Change From Business Tax To VAT

The Ministry of Finance, the State Administration of Taxation issued "Pilot Proposals for the Change from Business Tax to Valued-Added Tax" in November 2011.Pilot proposal pointed out that since January l,2012,in Shanghai, seven industry including transportation services, research and technical services, IT services,and so on,took the lead to change from business tax to valued-added tax. Since September 1, the scope of pilot of change from business tax to valued-added tax has extended to Beijing, Tianjin, Jiangsu and so on. And telecommunications was contained into pilot on June 1,2014. According to the "12th Five-Year Plan", the reform will be gradually extended to the country. However, in this reform, finance and insurance are not included in the "change from business tax to valued-added tax" range, which is applicable simple VAT tax method. But with the development of change from business tax to valued-added tax, insurance industry for VAT reform will be the trend.Since 1980, our country recovered to carry out domestic insurance business, and China’s insurance industry has made a rapid development. The scale of premium, the scale of assets, the scale of insurance company size and the scale of insurance practitioners have developed rapidly. But there is still a big gap between China’s insurance industry and the developed countries. The VAT reform is a good opportunity for China’s insurance industry. Our government should carry out VAT reform as soon as possible, in order to guide China’s insurance industry development. And China’s insurance companies should seize this opportunity to further development. In such background, this paper intends to study China’s insurance turnover tax system reform using the theoretical and empirical analysis.By studying the historical development of China’s insurance industry turnover tax system as well as the existing business tax system, we fund serious problems of double taxation of business tax. China’s insurance companies must burden greater tax burden. And the turnover tax system in China’s insurance lagged behind the development of the insurance industry. This paper collected 20 non-life insurance companies and 20 life insurance companies operating data in 2006-2012. And we estimated effective tax rate of all taxes, effective tax rate of business tax and effective tax rate of income tax. We can see that the effective tax rate of insurance industry, especially non-life insurance industry is facing a heavy tax burden through data. And we use the panel data regression to see what business tax affect the insurance company’s profitability and premium income. The study found business tax burden has a significant negative impact on the insurance company’s profitability, the greater the impact on non-life insurance companies, and business tax has a significant positive impact on premium income. Learn from the experience of developed countries VAT practices, as an example in no-life insurance, and we can see the simulation analysis of the effect on the taxable amout of turnover tax and the effective tax rate under simple VAT tax method and "Goods and Services Tax". By studying these problems, when insurance begin VAT reform, our government should take into account the impact of business tax on the insurance profits and premium income, and our government should also set a reasonable tax rate, in order to achieve the basic goal about change from business tax to valued-added tax that we should do not increase or decrease slightly the tax burden and eliminate the double taxation problem.