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Purposes: This thesis demonstrates the effects of "the replacement of business tax by value-added tax (VAT)" on the construction industry and the results of this policy and put forward relevant suggestions. Methods: documentary analysis, statistical analysis. Results: There are many problems about the implementation of "the replacement of business tax by value-added tax", such as no specific regulations of the designation of tax payment places, a lack of VAT deduction chain between upstream and downstream enterprises, the great difficulty of tax supervision by the government, etc. Conclusion: The government should expedite the institutionalization of "the replacement of business tax by value-added tax" in the construction industry and expand the pilot scope in various regions and industries. It should also intensify the supervision over tax payment and management so as to improve the management level. Background and Theoretical Basis Background. VAT is collected on the added value in the commodity production, circulation, labor and service links but not on the cost in the intermediate link. Therefore, it is well-accepted worldwide for its characteristic of neutral tax. The business tax and VAT co-exist in China's current circulation tax system. However, as the product of the development of China's market economy system, it was identified as the main objective and task of the economic development that we should "accelerate the transformation of economic development pattern and restructure the domestic economy"[1]. The existing circulation tax system is found unreasonable somehow and exert an increasingly negative impact on the economy. Since the implementation of VAT in our country, there has been no complete tax deduction chain in the commodity production, circulation and other links, which caused problems like overlapping tax and tax injustice. To tackle the problems caused by the existing tax system, which allows the co-existence of VAT and business tax, "CCCPC's advice on the formulation of the twelfth five-year plan for national economic and social development" was passed in CPC's fifth plenary session of the 17th Central Committee in October 18, 2010 and required "the expansion of the deduction scope of VAT and the according reduction of business and other taxes"[2]. Since November 16, 2011, when "The Pilot Program of the Replacement of Business Tax by VAT" was published after the stipulation by the State Committee, the relevant actions began. Tax Incidence Theory. Tax incidence refers to the foothold of the tax burdens being transformed and is a kind of theoretical abstraction. If the transforming process of the tax burdens is to be analyzed in the enterprise and individual level, the tax incidence equals to tax barer [3]. From the economic aspect, the real tax barer may differ from the legal tax barer in real life. Graph 1 suggests the increase of tax burden in the society as a whole, but this burden is borne jointly by consumers and enterprises, and how much each party will bear is determined by the elastic curve. Through analyses, we can find that in the construction industry, the enterprises bare more burden than consumers, which is due to the greater elasticity of consumers. This is the invisible increase of tax burden of enterprises in the construction industry after "the replacement of business tax by value-added tax (VAT)". They may reduce some of the tax burden we can observe after the improvement of chains, but it is still subject to the specific situation of each enterprise whether this kind of burden reduction can offset the invisible burden increase. 6th International Conference on Electronic, Mechanical, Information and Management (EMIM 2016) © 2016. The authors Published by Atlantis Press 969 Figure 1. Tax Incidence Model Data Statistics and Analysis of Difficulties Data Statistics. I analyzed the contradictions between central and local tax revenue through the statistics of national tax revenue and fiscal expenditure in 2014. Utilizing method of statistical analysis, I calculated the tax data in construction industry before "the replacement of business tax by value-added tax (VAT)"(in 2005, 2007 and 2010), compared the tax effect of the business tax rate of 3% and that of the value-added tax rate of 11% and then worked out the impacts imposed by "the replacement of business tax by value-added tax" on the tax revenue in the construction industry. Table 1 The national tax revenue and fiscal expenditure in 2014 after "the replacement of business tax by value-added tax "[4] Unit: [hundred million yuan] Years total volume of national tax revenue central-level tax revenue percentage of central tax revenue local tax revenue percentage of local tax revenue tax revenue 103768 44973 43.3% 58795 56.7% fiscal expenditure 151662 22570 14.9% 129092 85.1% VAT is the most important circulation tax in China. Under the former tax revenue sharing mechanism, VAT in export section was included by central tax revenue while in domestic section shared by central and local governments at a rate of 75:25. Except the part concentrated-paid by the railway corporation and the head offices of various banks, all other business tax went to local governments. After "the replacement of business tax by value-added tax" in construction industry, the business tax that used to be paid solely to the local government were transformed into VAT shared by central and local governments, which reduced the local tax revenue to a great extent. Table 1 indicates that in 2014, the central tax revenue took up 43.3% of the total volume of national tax revenue and the local government 56.7%. However, in terms of fiscal expenditure, the central government accounted for 14.9%, while the local government 85.1%. Imbalance between fiscal revenue and expenditure aggravated the contradiction between the central and local government and make it difficult for "the replacement of business tax by value-added tax" to go further.

Analysis of Effect of "the Replacement of Business Tax by Value-Added Tax" in the Construction Industry and Suggestions