From Business Tax change to VAT, what impact to the taxpayers ?

From news reports and the promotion materials regarding change from business tax to VAT:  To change from the business tax to VAT is conducive to improve the tax system, eliminate double taxation; to optimize the industrial structure; reduce corporate tax costs, and enhance business development capabilities.   So, to change from business tax to VAT, who has the most benefit?   Is it that it reduce the tax cost or increase the tax cost ?    We try to do the following analysis:-

Assuming general VAT taxpayers who provide taxable labor income is S, value-added rate is R (or deductible rate is 1-R), the rate is 17% and the general VAT taxpayers purchase goods and taxable services can reached VAT deduction ; the business tax rate is 3%, and the customer accepts the same amount of goods or services that may only consider the turnover tax regardless of urban construction tax and additional turnover tax, and corporate income tax deduction on the impact of the case, is it that the taxpayer’s turnover tax burden equal to the critical point :-

{ " S ÷ (1 +17%)-S × (1-R) ÷ (1 +17%) " × 17%} / S = " S × 3% " / S

The answer is:  R = 20.65%

Similarly, we can conclude that different tax rates applicable to enterprises, when under the VAT and other value-added tax rate (or deductible rate) as a critical point, as shown in Table -1-1.

Table 1-1 different VAT rates and other value-added tax rate (or deductible rate) critical point

VAT sales tax  applicable tax rates    applicable deductible
than the critical point gain

3%   17%  20.65% 79.35%
11% 30.27% 69.73%
6% 53.00% 47.00%
3% 97.09%
5% 17% 34.41% 65.59%
11% 50.45% 49.55%
6% 88.33% 11.67%
3% 58.25%

from the above data, we can conclude that the applicable rate of 3% of the original sales tax taxpayer levy under the VAT is as the rate of 6%, while value-added rate of less than 53% or to obtain proceeds deduction rate is greater than 47% when applied to the value-added tax. It is advantageous if the value is greater than 53% or to obtain proceeds deduction rate for less than 47% when applied to the value-added tax that would increase the tax burden.   Similarly, for the applicable tax rate of 5% of the original sales tax, taxpayer levy the VAT as the rate of 6%, when the value is less than 88.33% or greater than 11.67% deductible which applies when VAT is beneficial as well;   if the value is greater than 88.33% or 11.67% but less than the deductible amount, the applicable VAT will increase the tax burden.    For small-scale taxpayers, if the original tax rate of 3%, then the tax rate is2.91%; if the original applicable rate is 5 %, then the tax cuts up to 41.75%.

Solely from the tax point of view, if when considering the impact of tax reform on corporate tax burden, the applicable tax rates before and after the tax reform shall at the same time, be taken into account expenses for deductible Input tax revenue accounted, the deductible amount can obtain the certificate and so on.