TAN Li:VAT Reform of Financial Services Industry Based on Revenue-Expense Flow Method

Abstract：A simple VAT calculation method of financial services industry has been predetermined in our country's pilot scheme to replace business tax with value-added tax.There is little difference between this method and business tax, while the problems of double taxation, value-tax flow distortion haven't got changed.There are some advantages as well as disadvantages which are very difficult to overcome of the exemption approach, zero rating approach, cash flow approach and other tax methods designed in foreign country's practice and theory.To resolve this problem, the paper proposes the VAT reform plan based on revenue-expense flow method for the financial services industry.(a)This paper proposed the revenue-expense flow method which can be fully applied to the financial services industry for value-added tax levy.This method can effectively resolve many problems such as transaction value determination of financial hidden-fee service, double taxation, input-tax sharing, VAT deduction chain fracture and so on, and can also be used to the invoice-deduction method.(b) This paper provided the preliminary design of our country's value-added tax reform of financial services industry based on the revenue-expense flow method, including tax rate, the use of special invoices, exemption tax, zero-tax rate, the determination of transaction amount, the special treatment of non-life insurance business, the exclusion rule for non revenue-expense flows and so on.

Key words： Financial Service Industry   Revenue-Expense Flow Method   Value-Added Tax(VAT)   Business Tax   Transfer from Business Tax to VAT

source:Finance & Trade Economics ,No.11,2014