What are our expectations for VAT reduction?

Since 2018, China officially launched the VAT tax reduction reform, a series of supporting tax reduction and fee reduction measures have been launched. Up to now, the largest tax reduction and fee reduction measures have been implemented. VAT reduction rate is the largest tax reduction, and social security reduction rate is the most expected tax reduction. In addition, it also includes tax reduction for small and micro enterprises, corporate income tax reduction and other related reforms. The effect of tax reduction is very obvious, one of the indicators is to reduce government revenue. The VAT reduction rate, which began on April 1 this year, began to be reflected in the data in May, with a reduction of 111.3 billion yuan in revenue in the first month.

Different from previous tax reduction policies, the intensity and scale of this tax reduction is very large, which is not only reflected in the slowdown in the growth of government revenue, but also can directly bring about the decline in the absolute scale of revenue. From the perspective of the local income in the first five months of this year, the accumulated income in some places has been negative growth, which shows that the current income in April and may is precipitous decline. Although some areas can maintain the single digit growth, the actual income is also negative growth after the price factor is eliminated.

It is difficult to continue to reduce tax rate or rate by a large margin, but it can still play a certain tax reduction effect by gradually improving the value-added tax system, and from the perspective of modern tax system, these reforms are even more important than reducing tax rate. Next, according to the difficulty and time axis, we will talk about the expected value-added tax reform. These reforms are mainly three goals: neutral tax system, fair tax burden and raising the collection rate.

Open up the value-added tax chain of financial industry

We often say that value-added tax has a better neutrality. After 2009, China's value-added tax or consumption type value-added tax, which is a combination of the two, that is, the value-added tax has a very good transfer mechanism. The value-added tax burden paid in any link has been collected from the next link in advance. In terms of procedure, the first is that the enterprise has realized sales, the second is that the enterprise has achieved collection on behalf of others, and the last is that the enterprise has realized payment on behalf of others.

However, the existing VAT system in China is not perfect. Some are technical restrictions, others are institutional restrictions, among which the financial industry is the most typical. In the process of replacing business tax with value-added tax in 2016, the financial industry was included in the scope of value-added tax, but it was stipulated that the value-added tax of the financial industry should not be used as input tax deduction of downstream enterprises. For example, bank a provides a loan to enterprise B, realizing an interest income of 1 million yuan, of which the output tax of value-added tax is 56600 yuan (the internal price tax is converted into the external price tax), assuming that the input tax of the bank's purchase of equipment from upstream enterprise h is 30000 yuan; at this time, enterprise B's interest value-added tax of 56600 yuan cannot be deducted when it realizes sales, so enterprise B not only undertakes bank a 2 The value-added tax of 6600 yuan also bears the value-added tax of 30000 yuan of upstream h enterprises.

Therefore, China's value-added tax chain has been disconnected in the financial industry, which is of course due to the consideration of tax revenue. If the value-added tax chain of the financial industry is fully opened, then the tax revenue of the financial industry will be lost, especially considering the industry characteristics of high profits in the financial industry, and the implementation of corporate income tax is a unified 25% tax rate, so it is impossible to tax this profit difference Adjustment. Therefore, although replacing business tax with value-added tax was implemented for the financial industry in 2016, it essentially translated the previous business tax system. The result of the reform is to improve the profit margin of the financial industry (because input can be deducted), but it has no direct impact on the downstream industry.

It has three key functions to break through the credit chain of financial industry. First of all, from the perspective of tax system improvement, in the financial industry, the chain of deduction is split, which affects the whole industrial chain, not only the financial industry itself. Therefore, opening the chain of deduction benefits the whole industrial chain. Secondly, it can quickly reduce the financing cost of enterprises, and bring the financial industry into the input deduction. The deduction part is the decrease of the financing cost of downstream enterprises. Finally, it is conducive to promoting the financial industry to support the real economy. Within the scope of the existing value-added tax in the financial industry, many transactions within the financial industry are tax-free, but the lending of the financial industry and the real economy is tax-free and cannot be deducted. Opening the deduction chain can guide the capital to flow into the real economy and reduce the situation of idling of capital in the financial system.

Gradually merge the tax rate of value-added tax

In the future, the reform will be oriented to two levels of tax rate, of which the 13% level is very small, because it will bring a significant reduction in tax revenue, and the possibility of 6% level rise is very small, because it will cause the tax burden of service enterprises to rise; therefore, the biggest adjustment direction is to cancel the 9% level, merge it into the 6% level, the 9% level is relatively small, and adjust the tax rate to the macro level The impact of the economy is also quite small.

The main reason for the tax rate merging is not the unfair tax burden among enterprises. Under the premise of price tax separation, the level of tax burden among industries will not affect the business behavior and profits of enterprises. If the tax rate is 17%, 17% of the output tax will be collected on behalf of others. If it is adjusted to 13%, 13% of the output tax will be collected on behalf of others. Of course, in the real world, the price tax is interactive. The so-called price tax is just the accounting rules, not the pricing behavior of enterprises. However, even so, after a period of tax rate adaptation, the relationship between the tax rate difference and the price between industries will gradually stabilize. At this time, the tax rate will no longer have an impact on the price, and the unfair tax burden between industries will gradually eliminate. At this time, the tax rate difference will no longer directly affect the behavior of enterprises.

The real reason of tax rate merging is the unfair distribution of tax among regions, which causes the distortion of local government behavior. From the perspective of the production process of a product, the tax rate difference in the intermediate link will not affect the price of the final product, nor will it affect the profits of the intermediate enterprise. Even if the tax can be fully exempted in the intermediate link, only in the final link, there will be no big difference. However, from the perspective of tax revenue, the impact of tax rate difference is more obvious. The tax to be paid in each link is the output tax minus the input tax. Imagine that if a link is the output tax with high tax rate and the input tax with low tax rate, then there will be more taxes paid in this link, and vice versa. The value-added tax paid in each link corresponds to the value-added tax revenue of each place. From the perspective of local tax revenue incentive, each place will try to develop manufacturing industry and service industry as far as possible, so that the output with high tax rate can be opened to other places, and the input tax purchased from other places is lower, so as to obtain more value-added tax revenue.

Of course, the superior government can also make up for this difference through financial redistribution, but the coordination cost of this way is too high, and the implementation is relatively difficult. Therefore, after the tax burden at the micro enterprise level and the tax burden at the macro regional level, there will be some new problems. The solutions need to take both micro incentive and macro motivation into account.

From controlling tax by ticket to controlling tax by information

Value added tax invoice has its own characteristics of the times, and it must have its own constraints. At the stage when cash transaction is dominant and information technology is underdeveloped, controlling tax by invoice can effectively raise government revenue, but at its root, value-added tax invoice is also an information collection function. The deduction chain of growth tax is the flow direction of products / services, and the deduction chain is the industrial chain.

However, in the real economic activities, there are too many factors that cause the deduction chain to deviate from the industrial chain. Some are objective economic factors, for example, some reasonable purchases are not included in the output, some sales are not included in the output, resulting in the way of reducing the input of the output is different from the actual added value. The other is the design of tax system. For example, some market entities do not have the qualification of value-added tax invoicing. Even if they provide services or products, downstream enterprises cannot deduct them. One of the characteristics of modern economic production activities is the highly detailed division of labor. The deeper the division of labor, the greater the deviation.

Therefore, the most ideal model is to integrate capital flow and logistics information, using the information flow between enterprises as the basis of taxation. As long as the enterprise has sales, it will be reflected in the capital flow. From the technical level, it is difficult for the enterprise to conceal the real transactions. Therefore, it can achieve full collection of receivables through different information sources and improve the collection rate. On the other hand, the purchase of products or services by an enterprise is also reflected in the capital flow. No matter who is the seller of such purchase, the enterprise can be used as input tax deduction to achieve deduction on deduction.

The advantage of information taxation is very obvious. First of all, the cost of tax collection has been reduced. The cost of tax collection by tax authorities has been reduced, and the cost of taxpayers has also been reduced. Secondly, the tax certainty is improved. Enterprises do not need to provide proof for their input deduction, and can perfectly expect their own tax obligations. Finally, the tax collection rate has been raised. No matter the target of sales is other enterprises or individuals, the tax liability will not be affected.

Information integration is department integration, which synchronizes the information of the financial system and logistics system to the tax system. The tax department uses the information records of the financial system. From the technical level, the existing information construction level has gradually reached the requirements of information taxation, and the difficulty of information integration is greater than information construction itself.

It seems that these reforms are very difficult, either financial constraints are too strong, or technical difficulties are too great, and the possibility of implementation seems very small. However, many of China's system adjustments and reforms, once started, are also very rapid and accurate. About two years ago, I proposed in a financial and tax forum that I could speed up the tax rebate of the final retention of value-added tax. At that time, it seemed impossible to implement, but in 2019, it really rolled out in an all-round way. Therefore, these value-added tax reforms are expected to come earlier than we expected.