VAT Pilot Expansion And Corporate Tax Burden:Evidence From Chinese Listed Firms

In order to eliminate repeated tax levy and to lighten corporate tax burden, China issued VAT Pilot Expansion Program and other documents in2011, and carried it out firstly on January1st,2012in Shanghai, and subsequently expanded it to other places which includes Beijing, Tianjin, Jiangsu, Zhejiang, Anhui, Fujian, Hubei, Guangdong, Ningbo, Xiamen and Shenzhen in September2012. Since August1st,2013, VAT pilot had been further expanded nationwide. Since the beginning of2012, VAT pilot expansion policy has gone through more than three years; more and more industries are included and the region of pilot has expanded to the whole country. Based on136A-share listed companies’ panel data during the first quarter of2010and the second quarter of2013, this paper empirically studied the impact of VAT pilot expansion policy on corporate tax burden.Firstly, the article briefly introduced the background and content of VAT pilot expansion policy; on this basis, it analyzed the mechanism of how VAT pilot expansion affects the total tax burden of small-scale taxpayers and general taxpayers theoretically; accordingly, the paper proposed two hypotheses. In the empirical part, the paper set up a VAT pilot expansion dummy variable to companies according to implementing VAT pilot expansion policy or not; it also introduced an interaction term which is the product of VAT pilot expansion dummy variable and deductible rate dummy variable. Then, using DID model, this paper gained conclusions as follows:(1) On the whole, VAT pilot expansion can lighten corporate tax burden;(2) deductible rate has an important influence on the tax lightening effect of VAT pilot expansion; the tax burden of corporates with low deductible rate may increase after the tax reform, and that of corporates with high deductible rate will be effectively reduced. Finally, from the perspective of both firms and the government, the paper made some recommendations, such as proposing firms to maximize VAT deductible items and recommending the government to implement differentiated tax lightening policy for different enterprises.