"Replacing Business Tax With Value-added Tax" And China's Economic Integration

Before the "replacement of business tax with value-added tax",local taxes were mainly levied on business tax,which would distort the behavior of local governments,who formed market segmentation to protect their own interests.The reason for this is that the collection of business tax is regional in nature and the cross-regional flow of goods and services leads to the outflow of tax revenue originally belonging to this region.China's administrative system is also unique in that it combines regional"horizontal competition" with layers of "administrative contracting".Local governments should ensure both the absolute quality of completing the central task and the relative advantages of completing the task compared with other regions,so as to increase the odds of winning political tournaments.Under the background of this system,the local economy began to present a "officialdom + market" model characteristics of double drive,local governments have an incentive to foster not only economic competition and develop market power,will deliberately by the "visible hand",protect local industry,the suppression of inter-regional competition power,thus appeared the problem of local protectionism.In order to solve this problem,since 2012,China has gradually implemented the policy of replacing business tax with value-added tax from various industries and regions.It was initially piloted in Shanghai for "1+6" industries,and then expanded to 8 provinces and cities including Beijing and Jiangsu province in four batches in the second half of 2012.By August of the following year,the pilot program was implemented nationwide.At the same time,the replacement of business tax with value-added tax has also started to expand in the industry.By May 1,2016,China had replaced the business tax with a value-added tax for all industries nationwide.With the promotion of replacing business tax with value-added tax,the unique VAT deduction mechanism is bound to promote the reconstruction of regional trade and inter-regional trade pattern,thus affecting the integration process of market economy.By estimating the market integration index of 31 provinces and cities in mainland China from 2005 to 2016,this paper finds that the degree of market integration in China shows a fluctuating growth,and further empirical test also shows that the "replacement of business tax with value-added tax" significantly promotes the process of market economic integration.There will be a two-hand crowding out effect between the government and the market.For the effect of market integration,regions with more fiscal expenditure will be weaker than those with less fiscal expenditure.The conclusion of this paper demonstrates the practical significance of replacing the business tax with a value-added tax from a new perspective,that is,the significance of replacing the business tax with a value-added tax lies not only in opening up the industrial deduction chain,but also in breaking the pattern of local interests and gradually returning the collection and management right of the turnover tax to the central government.After the consolidation of national and local taxes,we will implement the original national tax management mode.The vertical management of the central government will further ensure and strengthen the unified collection and administration power of the central government,and reduce the tax incentive for local protection.At the same time,it will also provide a reference for further consolidating the achievements of replacing the business tax with a value-added tax and promoting market-oriented reform in the future.In the future,we will appropriately narrow government boundaries,continue to deepen market reforms while respecting market rules,improve the core competitiveness of enterprises,and create a better business environment for them.