Calculation of the Fiscal Transfer Payments After Value-Added Tax Expansion Reform in China

Abstract

The VAT expansion reform is one of the crucial issues in the reform of fiscal and tax system during the twelfth five-year-plan in China business tax, which is the leading type in local tax system, would be turned into vale-added tax (VAT) after the reform and this is bound to affect local financial interests. Through the formula of the local revenue of VAT and business tax before or after the reform, the paper concludes that local revenue can not be restored to the original level only by increasing the local proportion. In practice, we can improve the fiscal transfer payment system. Only through this way, we can reduce the impact of the VAT expansion to local finance, which will ensure the vested financial resources of local government and smooth the reform process.