(20) Supply price for j-th industry (taxation industry) after imposing VAT is as follows. (21) Expressing the prices of taxation (j-th) industries and exemption (k-th) industry together, one may have: (22) Where, is a matrix where column of are replaced by zero. If more than two k-th exemption industries exist, the relationship such as equation (22) holds true. Solving equation (22) with gives equilibrium price vector. (23) 4．Simulation The standard VAT rate is 17% in China and the VAT system include reduced rate, zero rate, and exemption as is shown in Table 4. Table 4 Tax rate of VAT Tax rate Commodities Standard rate 17% Food, Water, Coal & gas products for resident, Book, Newspaper, Reduced rate Tax rate Magazine, feedstuff, Chemical fertilizer etc. (13%) Agriculture, Fishery, Forestry, Livestock, Second hand book, Zero rate Equipment for scientific research and education, etc. Transportation, Construction, Finance & Insurance, Culture, Sports Exemption and Entertainment, etc. Notes: 1. An agriculture tax was abolished in January 1st 2006. 2. Because these industries pay the business tax, it exempts from VAT. 4-1 Data We input-output as a basic data. Incidentally, we need used “China table2007” a fixed capital formation matrix [Cij] which shows the providing industries of capital goods invested by each industry, in order to estimate the effect of investment goods tax credit. statistical authority, however, does not issue such a table. China’s Therefore, we made a tentative fixed capital formation matrix [Cij] by spiriting the column vector of fixed capital formation using the shares in the row vector of capital consumption． The price models showed in the previous section are based on a non- competitive import type of I-O table. The table that statistical authority China’s issues, however, is not a non-competitive type but a competitive type of I-O table.
(20) Supply price for j-th industry (taxation industry) after imposing VAT is as follows. (21) Expressing the prices of taxation (j-th) industries and exemption (k-th) industry together, one may have: (22) Where, is a matrix where k-th column of are replaced by zero. If more than two exemption industries exist, the relationship such as equation (22) holds true. Solving equation (22) with gives equilibrium price vector. (23) 4．Simulation The standard VAT rate is 17% in China and the VAT system include reduced rate, zero rate, and exemption as is shown in Table 4. Table 4 Tax rate of VAT Tax rate Commodities Tax rate Standard rate 17% Reduced rate Food, Water, Coal & gas products for resident, Book, Newspaper, Magazine, feedstuff, Chemical fertilizer etc. (13%) Zero rate Agriculture, Fishery, Forestry, Livestock, Second hand book, Equipment for scientific research and education, etc. Exemption Transportation, Construction, Finance & Insurance, Culture, Sports and Entertainment, etc. Notes: 1. An agriculture tax was abolished in January 1st 2006. 2. Because these industries pay the business tax, it exempts from VAT. 4-1 Data We used “China input-output table2007” as a basic data. Incidentally, we need a fixed capital formation matrix [Cij] which shows the providing industries of capital goods invested by each industry, in order to estimate the effect of investment goods tax credit. China’s statistical authority, however, does not issue such a table. Therefore, we made a tentative fixed capital formation matrix [Cij] by spiriting the column vector of fixed capital formation using the shares in the row vector of capital consumption． The price models showed in the previous section are based on a non- competitive import type of I-O table. The table that China’s statistical authority issues, however, is not a non-competitive type but a competitive type of I-O table.
544_20110430091_Price_effects_of_VAT_reform_in_China2.docx