Effective VAT Rates and Administrative Discretion in China

30 Pages Posted: 9 May 2014

See all articles by Weixian Cai

Weixian Cai

Xiamen University

John Whalley

University of Western Ontario - Department of Economics; National Bureau of Economic Research (NBER); CESifo (Center for Economic Studies and Ifo Institute); Centre for International Governance and Innovation (CIGI)

Date Written: April 8, 2014

Abstract

This paper highlights the difference between statutory and effective tax rates in the value added tax in China, and explores the role of administrative discretion in generating this difference. In China, unlike in Europe where the VAT originated, there can be significant differences between effective and statutory rates because of features of tax administration. The tax is collected at local level, but tax administrators have a centrally directed revenue plan to meet. They in turn have a range of elements of individual discretion in their tax collecting activities as they both administer the tax and meet their plan. We discuss what the elements of administrative discretion in China’s VAT are, and access a firm level data set from the National Bureau of Statistics to explore the implications of administrative discretion in oversight of the tax. In this dataset, VAT payable at firm level is reported and the data point to effective tax rates that can on average be close to double the statutory rate. These rates, however, vary by type of enterprise, by time, by region and other characteristics.

Keywords: effective VAT rate, administrative discretion

JEL Classification: H200

Suggested Citation

Cai, Weixian and Whalley, John, Effective VAT Rates and Administrative Discretion in China (April 8, 2014). CESifo Working Paper Series No. 4746, Available at SSRN: https://ssrn.com/abstract=2434463 or http://dx.doi.org/10.2139/ssrn.2434463

Weixian Cai

Xiamen University ( email )

Xiamen, Fujian 361005
China

John Whalley (Contact Author)

University of Western Ontario - Department of Economics ( email )

London, Ontario N6A 5B8
Canada
519-661-3509, ext. 83509 (Phone)
519-661-3666 (Fax)

HOME PAGE: http://www.ssc.uwo.ca/economics/faculty/

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Centre for International Governance and Innovation (CIGI) ( email )

57 Erb Street West
Waterloo, Ontario N2L 6C2
Canada

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
186
Abstract Views
1,472
Rank
293,530
PlumX Metrics