Empirical Research on the Influence of Replacing the Business Taxwith a Value-added Tax (VAT) to the Overall Tax Burden of Enterprises in Hubei

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1 , pp Empirical Research on the Influence of Replacing the Business Taxwith a Value-added Tax (VAT) to the Overall Tax Burden of Enterprises in Hubei Wenxia Li University of Science and Technology of Wuchang Business College, Wuhan , China lwx198223@163.com Abstract. Theoretically, the replacement of the business tax with a -added tax (VAT) should reduce the tax burden of enterprises for it aims to decrease double taxation, introduce structural tax reduction, promote specialized social division and speed up the integration of the primary, secondary and tertiary industries. However, does it really work in the reform? Based on the statistics of the statistical yearbook of Hubei Province from 4 to 2013 and with the help of the Eviews, this thesis, after analyzing the influence of replacing the business tax with a VAT to the overall tax burden of enterprises in Hubei, came to the conclusion that the replacement had not led to a substantial decline of the overall tax burden of enterprises in 2013 Keywords: Replace the business tax with a -added tax (VAT); tax burden of enterprises; empirical research 1 Introduction Since Hubei initiated the replacement of the business tax with a VAT in pilot sectors from December 1, 2012, Hubei witnessed constantly released reform bonuses and the integration and mutual development of the secondary and tertiary industries. In two years time, the number of taxpayers has been increased by over 80,000 with the tax reduction amounting to 6 billion yuan. By the end of December, 2014, Hubei had altogether thousand households of taxpayers included in the pilot sectors of replacing the business tax with a VAT, the growth rate reaching 246.9% compared with the initial 82.2 thousand households. Meanwhile, the tax in storage increased steadily. In 2014, the tax collected from the replacement of the business tax with a VAT in pilot sectors in Hubei was billion yuan, with a year-on-year increase of 2.3 billion and 47.5%. As for the changes in tax burden, the scope of tax abatement in pilot sectors in Hubei was enlarged to 97.4% from the initial 96.2%, the tax abatement reaching billion yuan. In 2014, the tax abatement generated from the replacement of the business tax with a VAT in Hubei was 2.93 billion yuan, in which 1.6 billion yuan of tax was cut for all the taxpayers in pilot sectors and the rest 1.33 billion was the tax deduction for ordinary VAT taxpayers receiving taxable services. ISSN: ASTL Copyright 2016 SERSC

2 In the past two years, the economy in pilot sectors has been running smoothly and the tax abatement effect has been constantly released, which solves the problem of double taxation, improves the tax system, promotes the adjustment of economic structure and boosts economic growth. As it is not easy to find the related statistics of the replacement of the business tax with a VAT in 2014, this thesis, on the basis of the statistics of the statistical yearbook of Hubei Province from 4 to 2013 and with the help of the Eviews software, analyzed the influence of replacing the business tax with a VAT to the overall tax burden of enterprises in Hubei. 2 Model Building To study the influence of the replacement of the business tax with a VAT to the tax burden of enterprises in Hubei Province, this thesis analyzed the changes of the sum of the business tax and VAT before and after the replacement. Meanwhile, the thesis chose five indexes to analyze the influence of the replacement of the business tax with a VAT to the tax burden of enterprises in Hubei, that is, gross output of the industrial sector, gross output of the construction sector, gross output of the tertiary industry, export and import. Let the sum of VAT and business tax be Y and then the gross output of the industrial sector, gross output of the construction sector, gross output of the tertiary industry, export and import will all influence the of Y. Let the five indexes respectively be x 1, x 2, x 3, x 4 and x 5. Based on the statistical yearbook and statistical communiqué of Hubei from 4 to 2013, the following table (Table 1) shows the sums of VAT and business tax, the gross output s of the different sectors, the import and the export from 4 to Table 1. The amount of the index Year Sum of business tax and VAT Industrial sector Construction sector Tertiary industry Unit: million yuan Export Import Sources: The statistical yearbook and statistical communiqué of Hubei and National Bureau of Statistics of the People s Republic of China. 12 Copyright 2016 SERSC

3 y y y Advanced Science and Technology Letters 3 Parameter Estimation In the workbook of the Eviews software, let the variables sum of business tax and VAT, the gross output of the industrial sector, gross output of the construction sector, gross output of the tertiary industry, export and import respectively be Y, x 1, x 2, x 3, x 4 and x 5. Then input the related data and get the following scatter diagrams (Figure1). As seen from the diagram, the variables x 1, x 2, x 3, x 4 and x 5 are linearly related with Y and when the gross output of all these sectors is zero, there would be no VAT or business tax. As a result, a linear regression equation without variable numbers can be set: Y i =α 1 x 1i +α 2 x 2i +α 3 x 3i +α 4 x 4i +α 5 x 5i +μ. Y= x x x x x ,000 20,000 30,000 40,000 x1 0 2,000 4,000 6,000 8,000 10,000 12,000 x2 Y Y 20,000 40,000 60,000 80,000, ,000 x3 0 1, 1, X4 900 X5 Fig. 1. Data scatter diagram Through the calculation in the Eviews software with the least square method, the result of the parameter estimation of the model is shown in the following table (Table 2). Y= x x x x x 5 Copyright 2016 SERSC 13

4 Table 2. The regression results of the model Variable Coefficient Std. Error t-statistic Prob. X X X X X R-squared Mean dependent var Adjusted R-squared S.D. dependent var S.E. of regression Akaike info criterion Sum squared resid Schwarz criterion Log likelihood Hannan-Quinn criter Durbin-Watson stat Dependent Variable: Y; Method: Least Squares; Date: 06/24/15; Time: 14:24; Sample: ; Included observations: 9 4 Model Checking According to the regression results of the model in Table 2, the goodness of fit R- squared= and Adjusted R-squared= , which shows that the model fits the variables well and the interpretation of variables x 1, x 2, x 3, x 4 and x 5 to Y reaches 98.46%. To check the stability so as to make sure that the data sequence in the panel is stable, u=resid is introduced to respectively do the unit root test of Y, x 1, x 2, x 3, x 4 and x 5 and the result is show in the following table (Table 3). Table 3. The unit root test of all the variables Test critical D(y,2) D(x 1,2) D(x 2,2) t-statistic Prob. t-statistic Prob. t-statistic Prob %level %level %level Test critical D(x 3,2) D(x 4,2) D(x 5,2) t-statistic Prob. t-statistic Prob. t-statistic Prob %level %level %level Copyright 2016 SERSC

5 It can be seen that variables Y, x 1, x 2, x 3, x 4 and x 5 all rejects the original hypothesis and turn out to be stable in the second order difference examination and the u=resid is stable as is shown in the following diagram (Figure 2). Fig. 2. The diagram of the residual error of the model Consequently, the following linear equation is reliable: Y= x x x x x5. Based on the regression results of the model, substitute x 1, x 2, x 3, x 4 and x 5 with the actual figures in 2013 and the sum of business tax and VAT in 2013 is billion yuan, billion less than the real figure in 2013, which is billion. As is shown in the residual plot in Diagram 2, the maximum of the residual is billion. Though billion is within the residual scope, there is no obvious sign of the decrease of tax burden. Consequently, it can be said that in the year of 2013, when the replacement of the business tax with a VAT has been implemented, there was no substantial reduction of the tax burden of enterprises in Hubei from the overall perspective. References [1] Wei S.: The influence of the replacement of the business tax with a VAT to the tax burden and financial indexes of enterprises, Research of Finance and Accounting, (2012) [2] Min Q.: The influence of the replacement of the business tax with a VAT to the tax burden of enterprises, Research of Finance and Accounting, (2013) [3] Shufen Q., Liheng S.: The influence of the replacement of the business tax with a VAT to the tax burden of enterprises and its financial countermeasures, Finance and accounting monthly, (2014) [4] Wang J.: The influence of the replacement of the business tax with a VAT to the tax burden and financial statements of enterprises, Friends of Accounting, (2010) [5] Yingang B.: A brief discussion of the replacement of the business tax with a VAT to the tax burden and financial statements of enterprises, China Chief Financial Officer, (2011) [6] Smith A.: The wealth of nations, Princeton: Princeton University Press, (1996) [7] Laffer A. B.: The Laffer Curve: Past, Present, and Future, The Heritage Foundation, (4) [8] Hsing Y.: Estimating the Lafifer Curve and Policy implications, Journal of Socio- Economics, (1996) [9] Benos, N.: Fiscal policy and economic growth: empirical evidence from EU countries, Munich Personal Repec Archive (9) [10] Buchanan J. M., Lee D. R.: Tax rates and tax revenues in political equilibrium: some simple analytics, Economic Inquiry (1982) Copyright 2016 SERSC 15