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By analyzing the economic effect and its mechanism of the reform of business tax to VAT on transportatio n industry in Inner Mongolia, we built the VAT-CGE model, and analyzed the impact of different tax rates and different forms of value added tax policy on the Inner Mongolia economy. The results showed that, if the transportation and warehousing tax rates are set to 11% and 6% respectively, the fixed asset investment is allowed to be deductible. Tax revenue will be reduced in Inner Mongolia, but the actual GDP will increase by 5.494% , the employment rate of the transport sector will raise 9.264%, the welfare of the residents will also added. So the "business tax to VAT " of transportation industry helps to optimize the investment structure of fixed assets in each industry and accelerate industrial transformation and upgrading.

An Analysis of the Impact of the Reform of Business Tax to VAT in Transportation Industry a A Case of Inner Mongolia