Evaluation of China's Taxation Centred on Indirect Taxes (Estimations Using the Input-Output Table)

This study evaluates the impact of recent indirect tax reform in China. It applies the 2007 input-output table to evaluate the price consequences of indirect tax reform. Using consumption profiles, it is possible to impute the incidence of taxes paid by individual income group. The indirect tax policy changes are expected to affect the revenue of central and local governments. Substituting VAT for business tax will lead to a significant decrease in government revenue. In the Twelfth Five-Year Plan, the VAT underwent reform. It will be probably difficult to maintain the high growth rate of taxes that China is seeing now. Compared with the tax burden of countries in the OECD, the tax burden here is relatively low. It is similar to consumption taxes, while the percentage of personal income tax is extremely small. Therefore, it is desirable to compensate for tax revenue decreases due to VAT reform by the revitalization of personal income tax in the future.