Article

China Accounting and Finance Review

, 18:4

First online:

Open Access This content is freely available online to anyone, anywhere at any time.

Regional Industry Structure, Industrial Tax Burden, and the Effectiveness of the Replacing Business Tax with Value Added Tax Policy: Evidence from Listed Companies in China

  • Huobao XieAffiliated withDepartment of Accounting, Economics and Management School, Wuhan University
  • , Lili HuiAffiliated withDepartment of Accounting, Management School, Wuhan University of Technology Email author 

Abstract

This paper investigates the impacts of industrial tax burden and regional industry structure on the effectiveness of the replacing business tax (BT) with value added tax (VAT) policy in China. Using an event study, we find that the stock market reacts positively to the introduction of the replacing BT with VAT policy. Specifically, the market reactions are stronger for the modern service industry than for the transportation service industry because the tax burden in sub-industries of the service sector changes after the shift from BT to VAT. Also, due to disparities in regional industry structure, the policy receives a better reaction in the eastern region than in the central and western regions. We further examine the long-term effects of the replacing BT with VAT policy. The results show that the reform-induced comparative advantages of the first pilot firms in Shanghai diminish gradually as the policy is expanded nationwide. Our findings have meaningful implications for the improvement of the replacing BT with VAT policy and the development of the service and manufacturing industries.

Keywords:

Regional Industry Structure Industrial Tax Burden Government Subsidies Replacing Business Tax with Value Added Tax Policy