Effective VAT Rates, Tax Efficiency and Burden: Are Some Industries over-Taxed in China?

Gene H. Chang, Ye Chen and Kathryn J. Chang

Chinese Economy, 2024, vol. 57, issue 1, 1-17

Abstract: Estimating effective VAT rates (EVATR) of industries to assess their tax burden and efficiency has drawn much interest in policy research; but the challenge is the lack of industrial Output VAT data. We develop a novel method to recover all VAT statistics at the industry level and endogenously solve EVATR from publicly available data by utilizing input-output relationship in a Computable General Equilibrium (CGE) structure. We apply the method to China’s data, estimate EVATR, and analyze implied tax efficiency and the tax burden of individual industries. Our study identifies true reasons for “VAT over-taxation” in some Chinese industries: China’s multiple-tier VAT rate system with unrefunded Input VAT and the accounting inconsistency between taxation and national accounts.

Date: 2024
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DOI: 10.1080/10971475.2023.2227030

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