Effective Tax Rates of Chinese Firms: An Analytical Framework and Micro-Level Measurement

Accurately measuring firms' effective tax rates and identifying the sources of their differences provide an important foundation for evaluating the effects of tax policies, studying tax administration, and advancing tax system reform. This paper develops a comprehensive analytical framework for firms' effective tax rates. Based on the composition of tax bases and tax liabilities, it distinguishes four measures—the composite statutory tax rate, tax liability rate, tax payment rate, and true tax rate—clarifies their respective economic meanings, and proposes a standardized measurement method using National Tax Survey data as well as a framework for decomposing the sources of tax rate differences. Estimates based on National Tax Survey data for 2011–2018 show that the various measures of value-added tax, corporate income tax, and total tax rates differ markedly in their levels, trends, and distributions across firms and therefore must be selected cautiously according to their economic meanings. The principal sources of tax rate differences also vary between value-added tax and corporate income tax: for the former, they are tax–accounting discrepancies and measurement errors, whereas for the latter, they are tax incentives. Tax–accounting discrepancies, tax incentives, and annual adjustments and additional tax payments following tax audits exhibit pronounced asymmetries in both coverage and intensity of impact. The findings indicate that neither differences in tax liability rates nor differences in tax payment rates across firms can accurately reflect the stringency of tax administration or the extent of corporate tax avoidance. This study helps improve the standardization and comparability of measurements of corporate tax rates in China, a fundamental indicator, and deepens understanding of the sources of tax rate differences.