 The optimal sales threshold separating taxpayers by size in ChinaZhiqi Zhao Economic Modelling, 2022, vol. 117, issue C Abstract: This study optimizes the existing sales threshold that separates taxpaying firms by size in China. In the Chinese value-added tax (VAT) system, small-scale taxpayers, whose annual sales are low and who pay a lower tax rate, are distinguished from general taxpayers by a sales threshold. To qualify as small-scale taxpayers and pay less VAT, some general taxpayers who would otherwise exceed the sales threshold tend to reduce production and bunch below the threshold. This bunching pattern is theoretically explained in this study and used to help derive the optimal sales threshold. Furthermore, this study analyzes how the optimal sales threshold varies with changes in administrative and compliance costs and in tax rates. Simulations reveal that optimal sales thresholds are lower than the actual thresholds, indicating that the trade-off between production efficiency and net tax revenue should be considered when determining the sales threshold for VAT in China. Keywords: Value-added tax; Optimal sales threshold; Small-scale taxpayers; General taxpayers; Bunching (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:117:y:2022:i:c:s0264999322002231 DOI: 10.1016/j.econmod.2022.105977 Access Statistics for this article Economic Modelling is currently edited by S. Hall and P. Pauly More articles in Economic Modelling from Elsevier |
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