Spillover effects of VAT Self-enforcement properties: Evidence based on the replacement of business tax with VAT reform |
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Affiliation: | School of Accounting, Dongbei University of Finance and Economics, No. 217 Jianshan Street, Shahekou District, Dalian 116025, PR China |
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Abstract: | In accordance with the purchasing tax-deduction method and the receipt-based value added tax (VAT) system, the same transaction can be recorded by two firms, which creates self-enforcement properties, thereby restraining tax avoidance. Using the Replacement of Business Tax with VAT reform in China, this paper adopts a difference-in-differences design to investigate the spillover effects of VAT self-enforcement properties on corporate income tax avoidance by manually collating information about suppliers/clients of listed firms. As the listed firms' suppliers/clients switch from paying business tax to paying VAT, there is a striking decline in their corporate income tax avoidance behavior. This effect is pronounced in firms with closer upstream and downstream correlations, higher information complexity and stronger incentives for tax avoidance. |
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Keywords: | VAT Corporate Income Tax Corporate Tax Avoidance Spillover Effect |
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