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Cai, Weixian
Whalley, John
Year of Publication: 
Series/Report no.: 
CESifo Working Paper 4746
This paper highlights the difference between statutory and effective tax rates in the value added tax in China, and explores the role of administrative discretion in generating this difference. In China, unlike in Europe where the VAT originated, there can be significant differences between effective and statutory rates because of features of tax administration. The tax is collected at local level, but tax administrators have a centrally directed revenue plan to meet. They in turn have a range of elements of individual discretion in their tax collecting activities as they both administer the tax and meet their plan. We discuss what the elements of administrative discretion in China’s VAT are, and access a firm level data set from the National Bureau of Statistics to explore the implications of administrative discretion in oversight of the tax. In this dataset, VAT payable at firm level is reported and the data point to effective tax rates that can on average be close to double the statutory rate. These rates, however, vary by type of enterprise, by time, by region and other characteristics.
effective VAT rate
administrative discretion
Document Type: 
Working Paper

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