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Effective VAT Rates and Administrative Discretion in China

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  • Weixian Cai
  • John Whalley

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.

Suggested Citation

  • Weixian Cai & John Whalley, 2014. "Effective VAT Rates and Administrative Discretion in China," CESifo Working Paper Series 4746, CESifo.
    • Handle: RePEc:ces:ceswps:_4746
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    References listed on IDEAS

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    Cited by:

    1. Longjin Chen, 2021. "Tax enforcement interactions among Chinese provinces: A frontier and spatial analysis," Growth and Change, Wiley Blackwell, vol. 52(1), pages 332-348, March.

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    More about this item

    Keywords

    effective VAT rate; administrative discretion;

    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General

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