The Effect of ‘to Replace Business Tax with VAT’ on the Indigenous Innovation of Manufacturing Enterprises: With Some Implications for Technical Introduction of Manufacturing Enterprises

Wang Guijun; Cao Ping

doi:doi:10.16538/j.cnki.jfe.2018.03.001

Summary

‘To replace business tax with VAT’ policy opens up the VAT deduction chain, not only impacting enterprises’ tax burden, but also changing the behavior of enterprises. The current research mainly analyzes the policy effect of ‘to replace business tax with VAT’ from the perspectives of corporate tax burden, fiscal revenues, corporate investment, industrial structure and so on. It does not address the perspective of ‘indigenous innovation’. Innovation is the key to national economic growth. The empirical research of ‘to replace business tax with VAT’ affecting enterprise innovation behavior is of great research significance. Based on the sample of manufacturing listed companies in A-share markets of Shanghai and Shenzhen from 2008 to 2013, with the help of the change in the number of patents in manufacturing listed companies before and after ‘to replace business tax with VAT’ policy, this paper uses difference-in-difference（DID）method to study the impact of ‘to replace business tax with VAT’ policy on indigenous innovation of Chinese manufacturing enterprises. Research shows that the ‘to replace business tax with VAT’ policy significantly reduces manufacturing enterprises’ willingness to do indigenous innovation and inhibits the indigenous innovation output of enterprises. The theoretical logic behind lies in that when business tax and VAT exist at the same time, manufacturing enterprises need to provide service products needed on their own in order to avoid double taxation. After the reform, due to the solution to the problem of double taxation, some enterprises adopt service and technology outsourcing more to meet the needs of production and operation, and reduce the self-sufficiency of service products such as information technology and software R&D which belong to non-core business, thus reducing the matching will of indigenous innovation, that is, ‘to replace business tax with VAT’ can reduce the willingness to do indigenous innovation in manufacturing enterprises by promoting specialized division of labor. Further analysis shows that, the reduction in the willingness to do indigenous innovation has not affected the profitability and corporate value of manufacturing enterprises. Although ‘to replace business tax with VAT’ reduces enterprises’ willingness to do indigenous innovation, it also improves the level of technical introduction of enterprises and leads to the change in enterprise innovation mode. The main contributions of this paper are as follows: firstly, it makes up the empirical research gap of the effect of ‘to replace business tax with VAT’ policy on indigenous innovation, and provides empirical evidence for the relationship between ‘to replace business tax with VAT’ policy and indigenous innovation; secondly, this paper focuses on the important relationship between macro-state policies and innovative behavior of micro enterprises, meets the current situation of the new normal and has important & clear policy implications, providing theoretical support for the choice of innovation mode of manufacturing enterprises and the formulation of government industrial policy: as for enterprises, manufacturing enterprises should take ‘to replace business tax with VAT’ policy as an opportunity to achieve synergy between indigenous innovation and technical introduction, and further deepen the specialized division of labor; as for governments, government departments should actively create a favorable market environment and enhance the protection of intellectual property rights, promoting ‘mass entrepreneurship and innovation’ substantively while amplifying the dividends of ‘to replace business tax with VAT’ policy.