Study On The Effects Of The VAT Tax Burden On The Business Performance Of The Financial Sector

The financial industry is the backbone of the contemporary economy,the lifeblood of the actual economy,and it is essential to China’s economy’s high-quality growth.People are becoming more conscious of the financial sector’s influence on macroeconomic regulation and its role in preserving the sustainable and healthy development of the national economy as a result of the financial crisis in recent years.A strong financial taxation system can not only provide fiscal revenue but also stabilize financial security and reduce financial risks.It is a crucial foundational structure for the development of China’s taxation system.Moreover,financial companies will see a decline in the size of their company and a decline in operating margins as a result of COVID-19.The 20 th Party Congress’ s report unequivocally highlights the need to boost financial enterprise assistance,encourage the entire high-quality development of the economy along with high-quality financial development,and fully exploit the role that financial services play in the real economy.In light of the current situation,it is of great theoretical and practical importance to research the best fiscal policies to adopt in order to reform and improve the financial industry’s taxation system,enhance the operating efficiency of financial enterprises,and support the development of the domestic financial market.In light of this context,this paper explores the issues with China’s current financial VAT taxation system using traditional economic theories such as optimal taxation theory,tax neutrality theory,tax efficiency theory,and tax burden shifting theory.It does so by comparing the past and present as well as by comparing various industries and nations on a global scale.To make pertinent policy proposals for VAT reform in China’s financial industry,it also incorporates empirical study and analysis.The paper elaborates as follows based on the aforementioned concepts: First,the article explains the context and importance of the study,defines terms like "VAT tax burden," and examines the process by which the VAT tax burden affects the financial sector’s operating performance.Second,it contrasts the financial sector’s present VAT policies,examines the state of the tax burden,and outlines the ongoing issues with the VAT system in China’s financial sector.Then,44 listed financial companies’ pertinent data were chosen as samples,and empirical analysis led to the following findings:The financial industry’s operating performance will decline as a result of the reduction in VAT tax burden,likely as a result of the rise in non-tax burden;the relationship between VAT burden and non-tax burden in the financial sector is "U" shaped,and a lower VAT rate will lead to a rapid increase in non-tax burden,which is detrimental to business performance;among the sub-sectors,the VAT burden in the banking sector is significantly inversely related to its financial performance,whereas the VAT burden in the securities and insurance sectors is significantly inversely related to the financial performance of the companies;the "business reform" program actually makes the financial sector’s business performance worse rather than better,as it was intended to achieve.Finally,by comparing the experience of other countries in designing VAT systems to promote the operating performance of the financial sector,the implications for China’s VAT system reform for the financial sector are analysed,and the following policy recommendations are made: Clear definitions and classifications of financial services are required;pay attention to changes in non-tax burden while implementing the VAT tax reduction in the financial sector;reasonably set the VAT tax burden and tax structure in the financial sector;further improve the financial sector’s VAT input tax credit system;improve the financial sector’s VAT collection and management system.In conclusion,the relevant authorities should aggressively encourage the improvement of the taxation system for the financial sector in light of the issues with the current VAT taxation system in order to allow the healthy development of China’s financial industry.