The Effect of VAT Expansion——An Analysis Based on the Pilot Program for the Collection of VAT instead of Business Tax

The Pilot Program for the Collection of VAT instead of Business Tax,issued on Nov.16,2011,marked the beginning of VAT expansion reform in China.This paper compares the tax rates of this program and the original business tax and takes into consideration of different purchases.We find that this pilot program,on the whole,is a measure to reduce tax burden,although with different impact on different types of companies.Besides its effect on tax burden,however,the reform will also alter the original balance in the overall tax structure.Therefore,future expansion of VAT must be in line with the long-term readjustment of tax structure and conducive to the transformation of the pattern of economic development.The VAT system should be improved in light of worldwide trends of changes in tax structure,including taxation scope,tax rate structure,tax preference and coordination of tax collection.