Open Journal of Social Sciences, 2015, 3, 157-164
Published Online November 2015 in SciRes. http://www.scirp.org/journal/jss
How to cite this paper: Yin, R. (2015) Study on the Problem of China’s Business Tax Changes to VAT. Open Journal of Social
Sciences, 3, 157-164. http://dx.doi.org/10.4236/jss.2015.311021
Study on the Problem of China’s Business
Tax Changes to VAT
—Based on the Panel Data of Listed Companies in the Transport
Public Finance Specialty, Jinan University, Guangzhou, China
Received 23 October 2015; accepted 14 November 2015; published 17 November 2015
Copyright © 2015 by author and Scientific Research Publishing Inc.
This work is licensed under the Creative Commons Attribution International License (CC BY).
The program to replace the business tax wi th a value-added tax has bee n tak en for th re e ye ars
since 2012 and it is a great success. Moreover, th e transport industry is not on ly a basic and ser-
vice one, but also a “bridging” i nst i tu te between soci a l production and consumpti o n, wherefore it
turns itself in to a focus and forer unner industry of the program. Under the condition of a compre-
hensive program about business, tax changes to the value-added tax in the overall industry for
2016 (shortened as “program” be low) . This essay attempts to probe what the program w oul d im-
pact upon the transport industry along with the causes in respect of tax incid e n ce and so forth in
the model of DID (Difference-in-Di fference model). Based on this, further relevant suggestions and
reflections upon improvements and soluble schemes of th e po licies a re goin g to be proposed.
The Program to Replace the Busines s Tax wi t h a Val u e -Add ed Tax , Transport Industry, Tax
Incidence, Sugg estio n
The program to replace the business tax w i th a value-added tax was first put forward on November 16, 2011;
then on January 1, 2012, Shanghai was the first place as a pilot implementation of the program in the transport
industry and a part of the modern servi ce indu str y. Furthermore it was expanded to Guangzhou and other eight
provinces in the same year on December 1. On May 24, 2013, this program re-upgraded, and expa nd ed its scope
to the whole country. With the constant improvement of the financial reform, China will achieve a whole indus-
try change of this program, such as the constru c tion, the financial ser vi ces, etc. in 2016. As the railway trans-
portation was included in the scope of the pilot in 2014, transport industry began as a full implementation of this
Transportation was treated as the reform pioneer, and its reform not only would impact well or ill on the di-
rection of national pilot program, but also is directly related to the program’s next strategic plan and the suc-
cessful implementation of the pilot work. For judging the quality of its effectiveness, the present studies embody
two issues. One is the research on the necessity of this program, and the other one is the study of changes in the
issue of the tax burden on transport enterprises. Most of the issues pay focus on the secon d one, su ch as Xu Da-
chang and Shao Yu (2012) who mad e the calculation on the part of the port. The data estimate the corporate tax
cases, which obtain the changeover withholdings on VAT that would affect the conclusions . Yang Ju n (2013)
got through the achievement by measuring the specific business and acquired at least some amount of input tax
to account for 6.89% of tax revenue, in order to mak e corp orate tax burden mitigated after the reform of “this
The essay selects the listed transportation company data from 2011 to 2013 as a sample. Then, the model was
based on the tax burden (turnover tax), ROE, policy variable, fi xed asset yields, company size and the number of
years that the company set up on behalf of the natural logarithm variable, by using DID model (Difference-in-
Difference model), and analyzing the division of industry specifically on transportation ta x burden of enterprises
in various industries, so as to make d eep ana lysis of the impact on the transportation business eff ic ien cy. The
purpose of the essay is also to provid e experiences an d references to the whole industry innovation, and mo r e o-
ver to help othe r industries to make the mo s t of this program to reduce the tax burden and achieve the goal of
maximizing corporate value.
This article provides the second part of the literature rev ie w and research hypothesis, and the third part of the
study design. The fourth part of empirical analysis provides empirical results. The fifth part analyzes the reasons
and gives the relevant conclusions and inspiration of this article.
2. The Study Design
From the essay’s point of view, particular to each separate industry input tax deductible costs that will take ef-
fect onto the corporate tax chang es, as well as the results of the this program imp l e me n t e d in transport industry.
Whether the increase of tax burden mentioned in research above is only in the short term due to the input tax
deduction system caused by inadequate, or, as some scholars have said above in the long ter m, the tax burden is
eased, and th e ultimate goal of this program is to reduc e the business turnover tax. Therefore, we propose the
H1: “this progra m” making the tax burden of listed companies to reduce transportation. Meanwhile, aft er the
implementation of this p rogram in transport industry, you can significantly promote the equipment renewal and
transformation of the industry, improve transport efficiency and improve the quality of transport, so as to en-
hance business performance. After this program, with corporate tax burden eased and a corresponding reduction
in cash outflow, the enterprises will promote the improvement of the performance of enterprises. For road
transport operators after the reform, the corporate tax increasing, despite the increase in the tax burden, but the
VAT chain will be more complete, and thus does great good to the company’s business. Its operation may lead
to growth, even if the short-ter m growth is not obvious, and to estimate the long-ter m, th e results of operations
will herald a distinct increase. Based on the above analysis, the essay presents the second study hypothesis.
H2: “this pro gram” will rais e transport operating performance of listed companies.
2.2. Research Methods
As this program is equivalent to a “natural experiment”, furthermore the reform can be considered exogenous
events. In the essay, the DID model would be taken in analysis. Highlighting the advantages of the model is bet-
ter to avoid selection bias, reverse causality bias, the time fixed effects an d lack of a cross-section fixed effects
and other endogenous variable biases , to make them effectively controlled for other differ ent influenc e and
advance the pilot areas and non-pilot regions to make spontaneous policies, enabling more accur at e id entifi-
2.3. Variable Design
In this essay, I choose to use the DID model set. From Table 1, you can see my selection and interpretation of
Select the same article with the choice of two tax business tax and VAT to measure the policy change in the
corporat e tax burden. Table 2 has shown the selection of selection tax value spe cifically.
2.4. Sample Selection
The essay selected listed transport companies from 2011 to 2013. As this program was carried out on January 1,
2012 in Shanghai, and gradually extended to the whole country, there are differences around the region imple-
mented. The adaption environment and the appropriate time will also affect the corporate tax changes as well as
changes in the operational effectiveness of the results. It is generally believed that the longer time to adapt, the
more responsive policies the company will make with some changes. Policy changes will make a difference to
enterprises in business, therefore we choose in August 2013 as the cutoff point.
I finally select 66 listed companies as a sample. The sample data are from the Wind Information and Annua l
Reports of Listed Companies, including industry data from the Chinese Chamber of Commerce Listed Compa-
nies’ Financial Indicato rs Index. Also I u se the STATA 12.0 s oftware processin g for statistical an alysis, and us e
the EViews 7.2 software for regression analysis.
2.5. The Model
It can be obtained from the above discussion, for all transport us to 2013 as the “Time Year”, and with P pres-
entation. P = 1 represents businesses in 2013, P = 0 indicates business in 2012. Provinces and the full imple-
mentation of the same in 2013, this program after 1, called the treatment group; the rest of the first implementa-
tion of this program in the local transportation is 0, as the control group, were represented by D. P·D is treated
with a virtual cros s -ter m variable annual dummy variables. Panel double difference regression equation:
y = b + gP·D + cLNTA + dDFA + fLNAGE + e
where, y represents the dependent variable, respectively, reflecting the corporate tax burden (Tax) and return on
equity (ROE) . P·D indicates a key explanatory variable known as “this program” policy vari ables, LN TA, DFA,
LNAGE control variables represent natural logarithm of firm size, the growth rate of fixed assets, the company
established years of natural logarithm, e represents the error term.
Table 1. The selection and interpretation of variable.
Tax Business tax + VAT
ROE (Rate of Return on Commo n Stockholders’ Equity) Mainly from the weighted average return on net assets
of the financial statements which was given directly
P*D (P represents the policy year, D represents the region) DID model embodies, P represents the policy year,
D represents the region (excluding railway transport)
LNTA (Total amount of assets) The natural logarithm of the total assets of the company,
namely when the total amount of assets
DFA (Dynamic Financial Analysis) (Fixed assets this year − fixed assets last year amount)/
Fixed assets*100% of the amount of the previous year
LNAGE (Age) Founded on the numbe r of years of nature
Table 2. The selection of selection tax value.
Business tax Annual statement “sales tax and additional tax”
VAT City tax/0.07 − Business tax
2.6. Statistical Analysis
There will be four cases:
1) The first case is P = 1, D = 0, indicates tax and business conditions in 2013 in the control group areas; the
second case is P = 1, D = 1, w hi ch represents the tax burden in 2012 and treated areas business conditions; the
third case is P = 0, D = 0 the tax burden and the operating conditions are non-regional group in 2013 repr esen ted
0; the fourth case is P = 0, D = 1 non-treated group represented region in 2013 the tax and operating conditions.
Thus it will produce several different, a difference the first case and the second case of shows changes in the re-
gion in 2013 in the control group and the experimental group and the regional tax operating conditions; 2) the
first case and the se con d the difference between the thre e cases of changes in the control group may react re-
gional corpo rate tax and operating conditions; 3) the second case the difference between the fourth case of the
said policy changes due to changes in circumstances treated the regional tax and operating conditions; 4) except
in 2013 outside the region and the control group treated area tax changes in business conditions and the differ-
ence between the t hir d and fourth case of representation .
“This program” w ill eventually be reflected in the cross-t erm coefficients g region and year two dummy va-
riables. Th at is, the double difference model was evaluated both pilot enterprises “this program” the effect, and
also evaluate the effect of the reform pilot enterprises compar ed to the non-pilo t enterprises.
3. The Literature Review and Research Hypothesis
Generally speaking, from the purpose of this program, the ultimate aim for the transportation is to reduce busi-
ness tax burden. Some scholar s ’ studies prove this conclusion. Wei Lu, Uribe Zhang et al. (2013) who con-
cluded that in 2012 th e ov eral l tax effect is obviously decreased in transportation and the over all tax burden has
been declined with statistical information disclosed in Xuhui District. More scholars proved that the small-scale
taxpayers are the biggest beneficiary groups. Through Zhu Gedan (2013) study, he found that since the pilot in
Shanghai reforms, the transportation tax of small -scale taxpayers’ declines very significan tly, and its develop-
ment environment has been significantly improved. And Ma X iul i (2013 ) pays focus on the smal l-scale taxpay-
ers to find that only when the transportation and value-added rate of less than 43.38%, the tax burden can be de-
creased, while the results will directly affect sma ll and mi c ro enterpr is e s enterprise value ratio of reform on the
overall tax burden, including the different effects on different industries and s izes [5 ].
However, some research suggests that the tax of transport companies is increased after this reform program.
Meng Xianguo (2012) have investigated the 32 pilot enterprises to fill in a questionnaire of transport service en-
terprises to dr aw that more th an 40% of the general tax payers signif icantly increase the ta x burden.
But mor e scholar s thought the effect from this program on the transportation tax is not determined. The re-
sults of pilot implementation ti me , implementa tion of industry specific co s t deduction, the taxpayer type, high
and low value of fixed assets factors may all be the important factors of the reform. As Zhu Hui (2013), Yang
Jun (2013) argued that the transportation tax changes depend mainly on the ratio of the amount of input tax de-
ductible business, if the proportion is mor e tha n 47.6%, the corporate tax burden will reduce . Li Zhijian
(2013) thinks that due to the impact on the proportion of input tax portion of different transport companies by
this reform program, the cost is also different . Su Shanjiang, Fan Yao Lu, W ang W e st ern Cape (2014)
through cost analyses and analyses of the various sectors in different proportions, reach an argument that the re-
sult of offset costs, for instance, the increase or decrease in the tax burden, varies. The offset cost s and the de-
ductible costs of the road transport industry, the proportion of railway transport, maritime transport, air transport
industry share th e different changes in their respective industry tax burden is different, Reform of this program
makes the air transport and water transport enterprises reduce the tax burden, road transport and rail transport
enterprises increase the tax burden .
Although the empirical results is not unified, from the theoretical analysis, the reform is in favor of fair taxa-
tion and f air competition a mon g en ter pr is es, while mo r e conducive to transport business-related upstream and
downstream enterprises to “go out”, so that companies are at a competitive position. As the transport industry is
the basic soc ial econo my and the ser vi ce s ecto r , long before this program, the enterprises have been offset by a
7% rate of VAT-deductible at a standard shipping costs, while the transport and other related invoice deduction
certificate management has become more perfect. After this program, the applicable transport tax rate becomes
11%. What should be specifically noted is that, due to this program, the tax rate only relates to the business tax
and value-added tax, so th e essay will be the sum of business tax and the VAT as the t ax burden.
4. Empirical Analysis
4.1. Statistical Descripti on
Statistical results of each variable in the model as shown in the chart. By comparing a “treatment group” pilot
areas samp l e enterprises and as a “control group” of non-pilot areas samp l e companies in 2011 to 2013 chang es
in the tax burden (in particular the results as shown), It can be seen that: 1) the treatment group have shown that
since 2012, some regions reformed policy implementation that year, so the burden of transportation of listed
companies in pilot areas also decreased, although in 2013 the tax burden on listed companies in the transport
industry is rising, but in 2013 with the ongoing reform pilot area as a whole is lower than before the tax increase
did not change camp. 2) Fo r the purposes of the control group: Their tax burden has been increasing. Therefore,
in 2012, the reformed year of policy implementation, the pilot area transportation tax burden of listed companies
has declined, and the tax burden on non-pilot areas still upward trend there is a clear difference. You can see the
result of statistical description from Figure 1 and Table 3.
Figure 1. The tax changes from 2011 to 2013.
Table 3. The result of the statistical description.
Variable Control group
N Average Standard deviation Ma x i mu m Min
TAX (unit: hundred million) 27 4.59 9.12 3.44 0.94
ROE 27 10.10% 7.01% 29.58% −6.24%
LNTA 27 22.84 1.28 25.32 20.41
DFA 27 0.11 0.26 0.82 −0.26
LNAGE 27 2.71 0.48 3.33 1.78
Variable Experimental group
N Average Standard deviation Ma x i mu m Min
TAX (unit: hundred million) 47 6.43 21.90 121.00 −1.3
ROE 47 4.76% 15.38% 21.33% −59.76%
LNTA 47 22.89 1.38 25.70 20.42
DFA 47 0.07 0.41 1.80 −0.56
LNAGE 47 2.76 0.38 3.33 1.78
4.2. The DID Model Regression Analysis
Before the DID model, the paper was co-linear test, there is no problem of collin earity between independent va-
riables in the model. H aussmann test carried out at the same time. Haussmann tes t of the null hypothesis is un-
related individual effect and regression variables of the model due Haussmann value is smaller, the correspond-
ing P values great e r than 0.1, so we should establish a random effects model.
In this essay, all the sample companies in 2013 as a pilot area, “this program” pilot reform after the treatment
group, while 2012 sample enterprises across other non-pilot regions as the pilot pre-reform group. In this way,
we construct a data set is from 2011 to 2013 balance panel. To test the hypothesis presented earlier, the essay
take the DID model, respectively, the tax burden, weighted average return on net assets is estimated as the de-
pendent variable. The results are shown in Table 4.
The results show that, under the control of the situation the company size, company’s fixed asset growth and
the company set up the same age, in 2012, “this program” on the transport of listed companies the tax burden
through significant test, so that the “reduce traffic business tax costs of transport”, the expectations are effec-
tively realized, the null hypothesis H1 be sure. In addition, the size of the company and a significant positive
correlation between the tax burden, which is consistent with the actual situation, in general, the larger the size of
the company, the higher the tax burden; the same level of performance is also related to the size of the company.
This conclusion shows that the program enhance the company’s expectations of market demand, increased
business investment will enable the industry have been expanding, through economies of scale brought about a
better economic benefits.
“This program” transport policy affect the performance of listed companies, from the measurement results can
be seen, the impact of policies on the ROE does not pass the significance test, while in 2012, the reformed poli-
cy makes transportation ROE of listed companies an average of 2.41%, while the 2013 ROE of listed companies,
Table 4. The result of DID model.
The result of DID model
Variable TAX ROE
P*D −2.46E+05** 4.05E−02
LNTA 5.99E+05*** 1.84E−02**
DFA −6.48E+04 4.47E−03
LNAGE −3.49E+05 −2.00E−02
c −1.22E+07 −2.58E−01
Haussmann test 3.343869 3.112497
Estimation Method RE RE
Sample 198 198
Individual 66 66
R-squared 0.860791 0.94499
Remark: T values for the coefficients in parentheses. ***, ** and * den ote at 1%, 5% and 10% significance level. RE random ef-
fects model, FE model for the fixed accordingly, Haussmann test the null hypoth esis to accept random effects are random effects
the aver ag e is reduced 4.01 percent, rejected the null hypothesis H2 . That is, “this program” for transport enter-
prises effect is not fully apparen t. The reason may be follows: 1) from the model set, due to operational effi-
ciency are many tax burden, they are not too obvious linear relationship exists, so the resul t is not significant; 2)
from the income statement an alys is , even though the low er tax burden makes the total profit increase, the result
in corporate income tax burden increase profits increase, and ultimately makes the operating eff ici en cy decreas-
es; 3) since the chain structure incomplete deductible proportion deductible costs cannot be accounted for rela-
tively large, thus affecting the results of operations. Air transport industry, only 53% of non-deductible (except
for 33% + 4% + 10%); road transport enterprises are deductible only fuel and repairs, non-deductible reached
66.77%; rail transport capable of reaching deduction of the cost of only water consumption and outsourcing ser-
vices, and the remaining 74.53% non-deductible; water transportation deductible cos ts only f uel consumption,
43.1% of the total cost of the remaining 56.9% are non-deductible. Plus some business equipment refresh cycles
just not in th is camp changed to increase the years, will result in fixed assets are not deductible portion, the tax
burden will increase, leading to a decrease in operating ef fi cien cy in the sho rt ter m .
5. Conclusions and Recommendations
Through research, in 2012, implementatio n of the p rogram to replace business tax with a value-added tax
reached a great efficiency in reducing the taxation burden of listed companies in transport industry, by means of
which enterprises fulfilled a remarkable industry expansion. In 2013, the full-scaled practice of this program,
however, did not present a satisfactory effect, as the taxation burden of enterprises intensified. Probable causes
might be an untimely transformation of enterprises’ operation patterns, excess of small -scale taxpayers, and an
inefficient access to deduction voucher under no expedite communication amid s t upstream and downstream,
because of the less completed chain of this program. So as to guarantee the smooth implementation and promo-
tion, in this essay, these suggestions follow .
Initially, enterprises should alter operation pattern s as soon as possible to better adapt themselves to this pro-
gr a m. And it demands that firstly more importance should be attached to the access to value-added tax invoice,
together with staff training and construction of relative departments to study tax declaration of for mal enterpris-
es. Furthermore, since acquisition and management of VAT special invoice exert a d ir ect influence upon the en-
terprises’ tax level, enterprises should streng th en specific knowledge trainings for relative membe r s like higher
managers, finance and taxation staffs, purchasing staffs and so forth, so th at they can better understand VAT an d
VAT special invoice, being trained in accurately handling complex problems in tax declaration process, to make
sure ent erp ri ses ’ smooth reformation in tax system. And finally, traditional decentralized purchasing should be
transformed into centralized purchasing, to obtain more V AT invoice for increasing income tax deduction.
Secondly, fro m this program per se, it is necessary to make perfect the VA T leg al s y st e m. In 2015, under the
industry-wide implementation of thi s program, VAT deduction chain has been basically completed according to
state policies, and it should be the next focus to make overall promotion in cooperation of various industries
concerned with this program. And in th e meanwhile, some VAT income deduction items would be appropriately
added, like road maintenance expenses and insurances that take up a large sh are of transportation enter pr is es
output, which government should per mit enter p r ises to deduct. Besides, in some economic a ctivities hard to re-
quest special invoice, for instance, fuel purchasing, repair service etc., the government should allow relevant
corporations to deduct pertinent output. And if possible, comprehensive special VAT invoice compatible in both
in logistics and transport industry can be designed and employed, thus making VAT income chain further ac-
complished, inco me tax of transportation enterprises’ VAT deduction increased, and enterprises’ turnover tax
decreased. And more importantly, this kind of special invoice could ensure reasonable growth of other taxes,
resulting in a genuine cut in enterprises’ comprehensive taxation along with expansion of the industry, whereby
it achieved the fundamental goal to truly abate enterprises’ taxation burden as well as speculate the market. As a
consequence, arrangements from the side of enterprises could facilitate job operation and efficiency of staffs.
Thirdly, from the perspective of tax rate, after this program, value-added taxes at th e rate of 11% and 6% are
set higher than business tax paid at 5% and 3% by many corporations that could not deduct a large amount of
cost. No one can conform to neutral principle of taxation. Therefore according to the requirement of commit-
ment of the principle of legislative taxation put forward in the Third Plenar y Session of the 18th Central Com-
mittee of the CPC, reformation on th e V AT system should be placed under promotion in the next step of this
program for the purpose of reducing tax rate and simplifying taxation. The steady promotion of this program
entails favorable opportunities for the VAT legislation. Completion of the VAT legislation guarantees the pru-
dence in taxation implementation, and brings forth further chance and welfare to experimental industries in-
cluding transport industry.
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