Tax Revenue Target, Strategic Collection and Effective Tax Rate, a collaboration between Tian Binbin and Li Wenjian, researchers of the IIDPF, was officially published in the authoritative journal Economic Research Journal, No. 8, 2020. This study focuses on the changes in the effective tax rate at the micro level in China in recent years, especially the structural difference between the tax burden pain of enterprises and the strength of macro tax reduction since the national policy of tax reduction and fee reduction. The study focuses on the cyclical changes in the collection and administration efforts of Chinese tax authorities from the perspective of tax targets, and serves as an institutional basis for understanding the cyclical changes in the actual tax rate of enterprises.
The main findings of the study were as follows: 1. The presence of taxation tasks significantly boosts collection efforts. On average, for every 1% increase in the target value, the effective tax rate of corporate income tax increases by 0.138% percentage points. At the macro level, the presence of tax target targets significantly boosts the macro tax burden rate. 2. The existence of a tax target has led to strategic collection practices by tax authorities. The study found that, the impact of tax targets on the effective tax burden of enterprises mainly concentrated in the group of uncompleted targets and those that happened to complete their targets, while it was not significant in the group of over-completed targets. This conclusion in fact fits the logic of the reality that the tax authorities are "hiding tax revenues" to reduce the base of future targets after the completion of the target.
The main policy recommendations given by the IIDPF are as follows: Firstly, a substantial 'de-targeting' is required in the area of tax administration. There is a need to eliminate the phenomenon of "laws without targets, administration with targets", to further strengthen and highlight the idea of " legal taxation", and to reduce the intervention and influence of administrative forces on tax collection and administration. Secondly, fundamental changes need to be made to the way in which the performance of tax collection agencies is evaluated. A shift is needed from emphasizing on the size and growth rate of tax revenues, to the matching of tax collection with tax sources and the accuracy of tax authorities in enforcing tax laws.
This publication is part of Dr Tian’s research outcome of the National Natural Science Foundation (Project approval number: 71973153): Tax Targets, Tax Collection and Enterprises' Real Tax Burden: Effects, Mechanisms and Policies.