The Effects of Tax Reduction and Fee Reduction Policies on the Digital Economy

Abstract

The digital economy is the future of the world in terms of both contemporary trends and opportunities. Developing the digital economy is a practical way of strategically re-thinking network power and digital China and is the only way to achieve successful growth in countries’ development economies and seize a commanding position for future development. Tax reductions, which promote high-quality economic development and preserve the overall situation of national governance, are an important measure for all countries to cope with economic pressure. In recent years, China has successively introduced and continuously expanded a series of tax and fee reduction policies that have played an important role in stabilizing its economy and vigorously developing its digital economy. This study consists of six sections. The first section provides an overview of the digital economy, introducing its definitions and connotations as well as the significance of developments of the digital economy. The second section is a literature review of tax and fee reductions; the research results in this field for countries around the world are summarized based on the three perspectives of research objects, tax-reduction-policy effects and research methods and data. The third section describes the impact of tax reductions and fee reductions on China’s digital economy from an international perspective. Through the 2019 Forbes Global Top 100 Digital Economy List, this article analyzes the global digital economy corporate structure, observes the positive effects of tax and fee reductions on Chinese digital economy companies and compares the impact of tax cuts and fee reductions on digital economy companies in China, the United States and other countries. Stata software was used to conduct an empirical analysis on the panel data of digital economy companies from both macro and micro perspectives and Section 4 presents an evaluation of the policy effects of tax cuts and fee reductions on digital economy companies from multiple aspects. China does not have a systematic tax and fee reduction policy that is compatible with digital economy development and its investments in large digital economy companies can be increased, as discussed in Section 5. In Section 6, we recommend that China improves and optimizes its tax and fee policies to increase tax incentives for independent innovation and high-level talent.

Full text

Sustainability 2021, 13, 7611. https://doi.org/10.3390/su13147611 www.mdpi.com/journal/sustainability
Article
The Effects of Tax Reduction and Fee Reduction Policies
on the Digital Economy
Tuochen Li and Liang Yang *
School of Economics and Management, Harbin Engineering University, Harbin 150001, China;
lituochen0409@163.com
* Correspondence: yangliang2018@hrbeu.edu.cn
Abstract: The digital economy is the future of the world in terms of both contemporary trends and
opportunities. Developing the digital economy is a practical way of strategically re-thinking
network power and digital China and is the only way to achieve successful growth in countries’
development economies and seize a commanding position for future development. Tax reductions,
which promote high-quality economic development and preserve the overall situation of national
governance, are an important measure for all countries to cope with economic pressure. In recent
years, China has successively introduced and continuously expanded a series of tax and fee
reduction policies that have played an important role in stabilizing its economy and vigorously
developing its digital economy. This study consists of six sections. The first section provides an
overview of the digital economy, introducing its definitions and connotations as well as the significance
of developments of the digital economy. The second section is a literature review of tax and fee reductions;
the research results in this field for countries around the world are summarized based on the three
perspectives of research objects, tax-reduction-policy effects and research methods and data. The third
section describes the impact of tax reductions and fee reductions on China’s digital economy from an
international perspective. Through the 2019 Forbes Global Top 100 Digital Economy List, this article
analyzes the global digital economy corporate structure, observes the positive effects of tax and fee
reductions on Chinese digital economy companies and compares the impact of tax cuts and fee
reductions on digital economy companies in China, the United States and other countries. Stata software
was used to conduct an empirical analysis on the panel data of digital economy companies from both
macro and micro perspectives and Section 4 presents an evaluation of the policy effects of tax cuts and
fee reductions on digital economy companies from multiple aspects. China does not have a systematic
tax and fee reduction policy that is compatible with digital economy development and its investments in
large digital economy companies can be increased, as discussed in Section 5. In Section 6, we recommend
that China improves and optimizes its tax and fee policies to increase tax incentives for independent
innovation and high-level talent.
Keywords: digital economy; tax reduction and fee reduction policies; policy effects
1. Overview of the Digital Economy
The digital economy is a contemporary global trend around the world and a modern
economic revolution. Accelerating the expansion of the digital economy is the only way
to achieve high-quality development in the future. The digital economy has become the
new engine of the global economy. Enhancing the digital economy has gained momentum
in China, where tax cuts and fee reductions are important measures that have been taken
to deal with downward pressures of the economy, promote high-quality economic
development and serve national governance. In recent years, China has successively
introduced and continuously expanded a series of tax- and fee-reduction policies that
Citation: Li, T.; Yang, L. The Effects
of Tax Reduction and Fee Reduction
Policies on the Digital Economy.
Sustainability 2021, 13, 7611.
https://doi.org/10.3390/su13147611
Academic Editor: Ştefan Cristian
Gherghina
Received: 5 May 2021
Accepted: 17 June 2021
Published: 7 July 2021
Publisher’s Note: MDPI stays
neutral with regard to jurisdictional
claims in published maps and
institutional affiliations.
Copyright: © 2021 by the authors.
Licensee MDPI, Basel, Switzerland.
This article is an open access article
distributed under the terms and
conditions of the Creative Commons
Attribution (CC BY) license
(http://creativecommons.org/licenses
/by/4.0/).

Sustainability 2021, 13, 7611 2 of 21
have played an important role in maintaining the overall stability of the economy and
vigorously developing the digital economy.
Based on big tax data and data from listed companies in the global digital economy,
this paper analyzes and evaluates the policy effects of tax and fee reductions in the digital
economy, explores existing problems and shortcomings and provides suggestions of how
to facilitate the high-quality development of the digital economy and optimize tax policies.
1.1. The Definition of Digital Economy
An authoritative definition of the digital economy was given by the G20 Digital
Economy Development and Cooperation Initiative, issued at the 2016 Hangzhou Summit.
According to them, “digital economy” refers to a series of economic activities that use digital
knowledge and information as key factors of production, modern information networks as
important carriers and information and communication technologies as an important
driving force for enhancing efficiency and optimizing economic structures. This definition
of the digital economy from the G20 Hangzhou summit is widely recognized [1].
The digital economy includes two aspects: digital industrialization and industrial
digitization. Digital industrialization promotes the formation and development of the
digital industry through the market-oriented application of modern information
technology, including emerging industries such as cloud computing, big data, the internet
and artificial intelligence, as well as basic industries such as integrated circuits, high-end
software, communication networks, new displays, new components and materials and
cutting-edge technologies such as blockchain, virtual reality, quantum information and
flexible electronics. Industrial digitization uses modern information technology to
drastically transform traditional industries and improve total-factor productivity by
promoting the integration of the internet, big data, artificial intelligence and the real
economy, including intelligent transformation, network collaborative manufacturing,
personalized customization, service-oriented manufacturing, the “enterprise cloud,” the
industrial internet and the digital development of the life-service and productive-service
industries [2].
To accelerate the decision-making arrangements for the construction of the National
Digital Economy Demonstration Province, which comprehensively and scientifically
reflects the development of the digital economy, the Ministry of Industry and Information
Technology and the National Bureau of Statistics (Beijing, China), in accordance with the
new industry classification catalog of the National Economic Industry Classification,
defined the statistical scope of 128 small industries in the following seven broad categories
as the core industries of the digital economy: computer communications and other
electronic equipment manufacturing; electronic information electromechanical
manufacturing; special electronic equipment manufacturing; telecommunications, radio
and television and satellite transmission service; the internet and its related services;
software and information technology services; and cultural digital content and its services.
1.2. The Significance of Developing the Digital Economy
1.2.1.
Acceleration
of the Development of the Digital Economy due to
International Competition
“International competition” refers to competition among countries for space and
resources. With the arrival of the digital age, the newly created virtual space has opened
up a new level of international competition. This has brought opportunities and
challenges that seek to change the forces of all parties and reshape the world’s political
and economic patterns, attracting the attention of many countries. China has developed
several leading enterprises in the digital economy such as Huawei (Shenzhen, China),
Tencent (Shenzhen, China), Alibaba (Hangzhou, China) and Hikvision (Hangzhou,
China). However, China’s digital economy still faces problems such as weak core
technological innovation capabilities, insufficient integration and application depth in

Sustainability 2021, 13, 7611 3 of 21
manufacturing, imbalanced regional development and insufficient support for digital
infrastructure; it still faces a big gap with developed countries.
1.2.2. Acceleration of the Development of the Digital Economy to Restart
Economic Momentum after COVID-19
During the COVID-19 pandemic, the digital economy’s lack of time and space
restrictions has been highlighted. New forms of e-commerce such as online shopping,
remote working and online services have played an important role in the fight against the
pandemic. The potential of new technologies such as big data, artificial intelligence and
cloud computing to transform and upgrade traditional industries has emerged. In the
short term, the digital economy has helped the offline economy through the pandemic
crisis and has ushered in opportunities for development. In the long run, the digital
economy’s empowerment of traditional industries will become an important engine for
economic development. The 2020 Government Work Report proposes continuing to issue
support policies, comprehensively promote “internet+” and create new advantages for the
digital economy. At present, China is in a critical period of industrial upgrading and a key
period of its economic restart after the pandemic. For China to seize the opportunity to
create new advantages for the digital economy, it needs to give full credit to the radiative
and leading role of the digital economy.
2. Literature Review on Tax and Fee Reduction
Different countries have different cultural and social backgrounds and political
systems and many scholars have created specific explanations of the impact of the tax
burden on economic growth.
2.1. Most Countries Focus on the Study of Individual Income Tax, Corporate Income
Tax, Dividend Tax and Value-Added Tax Reduction Policies and Their Effects
A large number of studies examined the effects of tax cuts on different classes, as well
as the effect of tax cuts on different economic entities. Rubolino and Waldenstrom (2018)
studied the positive impact of lowering the personal income tax rate of high-income
groups. Further research by Nallareddy et al. (2018) found that tax cuts increase the capital
income of high-income groups. Eissa and Liebman (1996) and Meyer and Rosenbaum
(2001) found that tax cuts have obvious incentives for low-income workers’ participation
in labor. However, Saez et al. (2012) and Romer and Romer (2014) found that tax cuts do
not provide significant labor incentives for high-income earners. Benzarti and Carloni
(2017) studied the different effects of French value-added tax cuts on different economic
entities, finding that there is almost no impact on consumers and business employees and
suppliers receive benefits of 16–25% while business owners receive benefits of 41%. Bell
et al. (2019) evaluated the impact of reducing the personal income tax of high-income
people in the United States from the perspective of incentive innovation. Saez, Schoefer
and Seim (2017), Bennmarker et al. (2013), Skedinger (2014) and Egebaik and Kaunitz
(2013, 2017) evaluated the impact of the reduction in the Swedish payroll tax rate from an
employment perspective while Sahm et al. (2015) evaluated the policy effect of the 2011
salary tax cuts in the United States from the perspective of household balance sheets.
Benzarti and Carloni (2017) studied the effect of French value-added tax cuts and Kosonen
(2015) studied the effect of Finnish value-added tax cuts.
2.2. A Large Number of Previous Studies Have Examined the Impact of Tax Reductions
on Innovation, Corporate Investment, Employment (Labor Supply), Savings and
Consumption
Dechezlepretre et al. (2016) found that tax cuts have an incentive effect on corporate
innovation, while Bell et al. (2019)—examining the perspective of individual investors—
found that reducing the income tax of high-income people has a significant positive

Sustainability 2021, 13, 7611 4 of 21
incentive for innovation. Chen et al. (2017) found that corporate income tax cuts can also
stimulate innovation. Saez et al. (2017) found that lowering the payroll tax of young
workers can promote corporate investment. Zwick and Mahon (2017) found that tax cuts
have an important impact on small companies’ investment behaviors. Chetty and Saez
(2005) showed that the 2003 dividend tax cuts in the United States significantly increased
corporate dividends but Yagan (2015) found that this did not increase the investments of
corresponding enterprises. Gourio and Miao (2011) found that unexpected and permanent
tax cuts increase investment but unexpected and temporary tax cuts reduce investment in
the long run. Zidar’s (2017) research using US data after World War II showed that tax
cuts can promote employment but the employment effect of tax cuts is related to the size
of the benefits that low-income groups receive from tax cuts. Ljungqvist and Smolyansky
(2018) showed that tax cuts only significantly promote employment when the economy is
in recession. Auerbach (2002)’s simulation study showed that Bush’s 2001 tax cuts had
negative effects in both the long- and short-term perspectives, while Carroll (2000) used
Japan’s post-war data to find that permanent income tax cuts cannot immediately increase
consumption and aggregate demand.
There have been few studies on the feasibility and sustainability of further tax and
fee reductions in China. Gao Peiyong (2017) examined the sustainability perspective of
the tax and fee reduction policy and pointed out that direct tax reform with personal
income tax and real estate tax as the main content should be promoted. He Daixin (2019)
pointed out that the implementation of a new round of larger-scale tax and fee reductions
faces challenges in reality and theoretically faces uncertain policy transmission
mechanisms and uncertain policy effectiveness. Yan Kun and Yu Shuyi (2018) pointed out
that a more feasible tax and fee reduction policy can be achieved by reducing tax
perception.
2.3. The Research Can Be Divided into Macroscopic and Microscopic Aspects Based on
the Perspective of Research Methods and Research Data
Some past research adopted macro data and VAR or structural measurement model
methods to study the policy effects of tax cuts, such as Romer and Romer (2009), Gourio
and Miao (2011), House and Shapiro (2006), Auerbach (2002) and Baxter and Crucini
(1993). Other past research adopted micro-enterprise data or industry-level data with the
use of regression analysis, double difference and other quasi-experimental measurement
methods to study the policy effects of tax cuts, such as in Bell et al. (2019), Ljungqvist and
Smolyansky (2018), Zidar (2017), Chen et al. (2017), Zwick and Mahon (2017), Benzarti
and Carloni (2017) and Yagan (2015).
3. The Impact of Tax and Fee Reduction on China’s Digital Economy
from an International Perspective
Developing the digital economy is the prevalent trend of the world, the opportunity
of the times and a crucial market for international competition. China has the world’s
largest e-commerce market—accounting for >40% of all global e-commerce transactions—
and its mobile payment transactions are several times that of the United States. China has
become an important force in shaping the global digital economy [3]. However, from the
perspectives of economic scale, R&D capacity and overall strength, the United States
remains the world’s number one digital economy, while China is number two.
Competition between these two in terms of the digital economy is inevitable [4].
Therefore, it is imperative to analyze the effect of tax and fee reduction policies on China’s
digital economy from an international perspective to promote China’s digital economy
and enhance its international competitiveness [5].

Sustainability 2021, 13, 7611 5 of 21
3.1. The Top 100 List Reflects the Global Digital Economy
On 11 October 2019, Forbes China released the 2019 Forbes Global Digital Economy
Top 100 list, which can be used to analyze the impact of tax and fee reductions on China’s
digital economy from an international perspective, providing a comparative analysis of
the list of enterprises for enhancing the international competitiveness of China’s digital
economy through tax and fee reductions. Figure 1 shows the number of companies
included in Forbes Global Digital Economy Top 100.
The companies on the 2019 Forbes Global Digital Economy Top 100 list represent the
top level of the digital economy and their distribution, scales and characteristics reflect
the development pattern of the global digital economy. The list shows that the United
States is the main force in the development of the digital economy. China’s leading
enterprises in the digital economy strive to reach a relatively leading level but a big gap
remains between them and the United States.
Figure 1. Number of companies included in Forbes Global Digital Economy Top 100.
3.1.1. The United States Ranks First, in terms of the Number of Companies on
the List, while China Ranks Second
In the 2019 Forbes Global 100 Digital Economy List, the United States and China have
the most companies on the list at 38 and 14, respectively (including Hon Hai and TSMC,
two Taiwanese companies). There are 52 American and Chinese companies on the list in
total, accounting for half of the list. In addition, Japan has 13 companies on the list, South
Korea and the Netherlands both have four companies on the list, France and Canada both
have three companies on the list, the UK, Germany, Sweden, Switzerland and India have
two companies each and Ireland, Australia, Finland and the other 11 countries each have
one company on the list. China ranks second on the list, which shows that Chinese digital
economy enterprises have strong international competitiveness. However, the number of

Sustainability 2021, 13, 7611 6 of 21
US companies on the list is 2.7 times that of China, which shows that the American digital
economy still takes a commanding lead.
3.1.2. US Companies Dominate the List, while Chinese Companies are among
the Top 10
Among the top 10 in the 2019 Forbes Global 100 Digital Economy List are seven
American companies, two Chinese companies and one South Korean company, which
reflects that the United States firmly holds a leading position in the digital economy and
China is still striving to take the lead in the top 10 in the world. From the perspective of
ranking units, the leading companies in the digital economy in the United States have a
significant lead on China. Apple (Cupertino, CA, USA) and Microsoft (Redmond, WA,
USA) were ranked first and second, respectively. In addition, Alphabet, AT&T, Amazon,
Verizon Telecom and Disney were among the top 10 finalists; China Mobile (Beijing,
China) and Alibaba ranked seventh and 10th, respectively; and South Korea’s Samsung
Electronics ranked third.
3.1.3. The US Enterprise Industry Classification is Extensive, while the Chinese
Enterprise Industry Classification is Relatively Concentrated
According to the classification of companies in the 2019 Forbes Global Top 100 Digital
Economy List, US enterprises are distributed in 13 categories: semiconductors, software and
programs, computer hardware, business and personal services, internet and catalog sales,
computer services, consumer financial services, broadcasting and cable television and
entertainment products, thereby covering a wide range. In contrast, Chinese enterprises
mainly come from seven categories, including telecommunications services, computer
services, Internet and catalog retail and computer hardware. Thus, in many areas of the
digital economy, the United States has industry leaders in the top 100, while China’s leading
digital economy enterprises are involved in relatively few industries. Figure 2 shows the
numbers of US and China Digital Economy Companies listed by industry.
Figure 2. Numbers of US and China Digital Economy Companies listed by industry.

Sustainability 2021, 13, 7611 7 of 21
3.2. Tax Cuts and Fee Reductions Help Enhance the International Competitiveness
of China’s Digital Economy
Referencing the annual report of listed companies in the Wind database (see
Supplementary Materials), this paper analyzes the production and operation of the
enterprises on the 2019 Forbes Global Top 100 Digital Economy List. We found that over
the past five years, with the effective development of the tax and fee reduction policies,
China’s digital economy has continued to develop rapidly compared with other
international leaders. Additionally, its profitability has improved, its tax burden has
reduced and its international competitiveness has enhanced.
3.2.1. China’s Digital Economy’s Main Revenue Growth Rate is Faster than that
of the United States
In 2015–2019, the main operating revenue of the listed companies in China’s digital
economy reached 3,609, 3,815, 4,749, 5,277 and 571.6 billion USD, respectively, with an
average annual growth rate of 12.2%. The main operating revenue of the listed companies
in the US digital economy reached 14,837, 14,940, 16,290, 18,530 and 1,969 billion USD,
with an average annual growth rate of 7.3%. China’s digital economy has a smaller income
than that of the United States, but it is catching up, with an average annual growth rate of
4.9 percentage points.
3.2.2. China’s Digital Economy is Growing Faster than that of the United States
in terms of Net Profit
In 2015–2019, the net profits of the listed companies in China’s digital economy were
395, 347, 401, 535 and 61.9 billion USD, with an average annual growth rate of 11.9%. The
net profits of the US digital economy companies on the list were 24,535, 27,329, 19,705,
16,290 and 3,678.7 billion USD, with an average annual growth rate of 10.7%. The total net
profit of China’s digital economy is smaller than that of the United States, but the growth
trend over the past five years has been faster and more stable than that of the United
States, with an average annual growth rate 0.4 percentage points higher than that of the
United States.
3.2.3. China’s Digital Economy R&D Investment is Growing Faster than that in
the United States
Digital economy and technology change rapidly and so leading enterprises must
actively research and develop to maintain a leading edge in the industry. In 2015–2019,
R&D expenses of the listed companies in China’s digital economy were 77, 85, 117, 162
and 18.8 billion USD, with an annual increase of 25%. The R&D expenses of the listed
companies in the US digital economy were 1,022, 1,131, 1,297, 1,495 and 171.2 billion USD,
respectively, with an average annual growth rate of 13.8%. The scale of R&D investment
in China’s digital economy is smaller than that in the United States but the average annual
growth rate exceeds that of the United States by 11.2 percentage points, which reflects the
strong innovation power and development potential of China’s digital economy [6].
3.2.4. The Income Tax Burden of China’s Digital Economy has Dropped
Significantly
In 2015–2019, the corporate income tax on China’s digital economy was 103, 104, 134,
12.9 and 13.2 billion USD, with an average annual growth of 6.2%, which was 5.7
percentage points lower than the growth rate of net profit over the same period. The
income tax burden was reduced from 20.4% to 17.8%, a decrease of 2.6 percentage points,
reflecting that the series of tax and fee reduction measures have been effective and that
the income tax burden has been significantly reduced. The corporate income tax on the
US digital economy list was 690, 565, 553, 694 and 41 billion USD, respectively, with an
average annual decrease of 12.2%. The income tax burden had been reduced from 25.3%

Sustainability 2021, 13, 7611 8 of 21
to 12.0%, a decrease of 13.3 percentage points, which reflects that the impact of American
tax reform on the corporate income tax burden is stronger than that of China. Although
the income tax burden of China’s digital economy has fallen significantly, it is currently
higher than that of the United States [7,8].
3.3. Empirical Analysis of the Impact of Tax and Fee Reduction on Digital Economy
Enterprises from the International Perspective
To carry out an international comparative analysis of the effects of tax reduction and
fee reduction policies on digital economy companies, this paper uses the panel data of
global digital economy enterprises for 2015–2019 in the Wind database and uses Stata
software to construct a dual-difference Difference-in-difference (DID) model for
measurement and analysis.
Data source: the main operating income, operating cost, operating profit, operating
profit rate and operating cost rate in the annual report data of listed companies in Wind
database.
Sample description: First, in the Wind database, global listed companies in the 2019
Forbes Global Digital Economy Top 100 listed enterprises and some information services
listed companies as a supplement with a total of 122 companies. Second, there are 48 large
digital economy enterprises in China, 39 in the United States and 35 in other countries and
regions. Third, the five-year (2015–2019) data of the abovementioned enterprises will be
taken. The Comparative data between China and the United States in this research are
shown in Table S1 in Supplementary Materials.
Model construction: first, two groups of enterprises were selected from global digital
economy enterprises, one of which was the processing group, i.e., the enterprises enjoying
the tax reduction and fee reduction policy, to facilitate the comparative analysis with the
large-scale tax reduction and fee reduction in 2018 in China and the tax reform in the
United States in 2018, the treatment group was further divided into treatment groups 1
(large Chinese digital economy enterprises with large tax cuts) and 2 (large American
digital economy enterprises with US tax reform). The other group was the control group,
i.e., enterprises without large tax cuts where other countries and regions outside China
and the United States as the control group. Then, according to the difference in
profitability between the experimental group and the control group before enjoying large-
scale tax reductions (tax reform) and the difference in profitability after enjoying large-
scale tax reductions (tax reform), the impact of large-scale tax reduction on the
profitability of digital economy enterprises was measured. Finally, the differences
between treatment group 1 and the control group and between treatment group 2 and the
control group were double-checked to analyze the impact of large-scale tax cuts and fee
cuts (tax reform) in both China and the United States on the profitability of digital
economy enterprises. Table 1 shows the results:
Table 1. Impact of Tax Reduction on the International Competitiveness of Digital Economy
Enterprises.
Groups (1) (2)
Variables China Operating Profit Margin United States Operating Profit
Margin
Tax reduction area * tax reduction
2.871 **
2.968 ***
Operating cost rate
(1.643)
−0.645 ***
(0.0458)
−0.584 ***
(0.0628)
(0.0458)
Observations
415
370
R-squared
0.266
0.425
Regional fixed effects Yes Yes
Time fixed effects Yes Yes
Note: *, ** and *** indicate significance at the levels of 10%, 5% and 1%, respectively.

Sustainability 2021, 13, 7611 9 of 21
From the calculation results of model (1), the p-value of the cross item “tax reduction
area * after tax reduction” in the double difference model between China and other
countries outside China and the United States is <0.05 and the influence coefficient is
positive (2.871). This shows that large-scale tax reductions in 2018 had a significant
positive impact on the operating profit margin of Chinese digital economy enterprises and
improved the international competitiveness of digital economy enterprises.
From the calculation results of model (2), the p-value of the cross item “tax reduction
area * after tax reduction” in the double difference model between the United States and
other countries outside China is <0.01 and the influence coefficient is positive (2.968 *).
This shows that the 2018 tax reform had a significant positive impact on the operating
profit margin of American digital economy enterprises and improved the international
competitiveness of digital economy enterprises.
Compared with the results of the two models, China’s large-scale tax cuts in 2018 and
the US tax reform in 2018 significantly affected the operating profit margin of domestic
digital economy enterprises and enhanced the international competitiveness of domestic
digital economy enterprises. The impact effect of the United States was relatively more
significant as the impact coefficient was slightly higher. According to the above analysis,
China’s digital economy is clearly facing great challenges. First, a big gap remains between
leading enterprises and international benchmarks. Compared to international
benchmarks, China’s digital economy still has a lot of room for improvement. In the field
of e-commerce, compared to the international benchmark of Amazon, Alibaba’s operating
revenue and R&D are smaller. Amazon’s (Seattle, WA, USA) operating revenue and R&D
costs were 28.05 billion USD and $35.9 billion USD in 2019, respectively, while Alibaba’s
were $71.9 billion USD and 6.1 billion USD, respectively. In cloud computing, Amazon
AWS and Alibaba’s cloud revenue in 2018 were 26.6 billion USD and 3.6 billion USD,
respectively; the former being seven times larger than the latter. Second, the profit
margins and intensity of R&D investment lag behind developed countries. In the 2019
Forbes Top 100 Digital Economy List, the average net profit margin and R&D investment
intensity of Chinese companies in 2019 were 10.8% and 3.3%, respectively, while those in
the United States were 15.2% and 8.7%, respectively, with a difference of 4.4 percentage
points and 5.4 percentage points, reflecting the fact that compared with the United States,
where the digital economy is more developed, the profitability and innovation input of
China’s digital economy are weaker. Although China’s digital economy is growing faster,
it still lacks in terms of quantity and quality compared to the United States.
4. Analysis of the Effects of Tax and Fee Reduction Policies in the Digital
Economy
According to the statistical catalog of digital economy industries, the analysis of the
implementation of digital economy tax reduction and fee reduction shows that the scope
of tax reduction and fee reduction in the digital economy are expanding and the total
amount is increasing, mainly based on enterprise income tax and supplemented by value-
added tax. There is more preferential treatment for high-tech encouragement enjoying tax
treaty. The amount of tax and fee reductions in the foreign-related digital economy are
greater than those of domestic enterprises and the digital economy service industry enjoys
preferential treatment compared to the digital economy manufacturing industry, mainly
focusing on key software enterprises, R&D plus deduction, software products value-
added tax collection and refund policy. From the scale, large enterprises enjoy the vast
majority of tax reductions [9]. Both quantitative and qualitative analyses show that tax
reductions and fee reductions play a positive role in promoting the rapid development of
the digital economy, accelerating innovation, stabilizing investment, absorbing
employment and upgrading the structure [10]. From the point of view of the specific
policy of tax reduction and exemption, the preferential tax rate of income tax for key
software enterprises, the deduction of R&D expenses and the preferential amount of
software value-added tax are larger. Through the empirical analysis of the digital

Sustainability 2021, 13, 7611 10 of 21
economy, the effect of tax reduction and fee reduction policies in the digital economy are
scientifically evaluated to further optimize the policy and promote development [11].
4.1. Analysis of Tax and Fee Reduction Policies in the Digital Economy
With the continuous upgrading and comprehensive implementation of tax and fee
reduction policies, tax and fee reductions play an active role in promoting the
development of China’s digital economy, encouraging technological innovation,
expanding effective investment, enhancing social employment, promoting the
development of small and micro-enterprises and optimizing the industrial structure [12].
The essence of digital economy lies in information technology, which requires the
development of certain high-tech information technology and industry that involve
integrated circuits, communication equipment and facilities, computer hardware and
software, network equipment, manufacturing microelectronic products and information
and data collection, processing, storage, computing and other service areas [13]. The
development of these fields requires innovation and a large amount of early investment;
the development of these fields calls for efficiency with the rapidly changing situation and
higher risk. It is necessary for the government to share the risk of innovation, reduce the
cost of entrepreneurship, lighten the tax burden, increase the profitability, attract capital
investment, increase the vitality of the development of digital economy and make efforts
to develop the economic quality by adopting policies such as tax and fee reductions. The
key to developing the digital economy is technology and innovation [14].
Regarding tax and fee policies, China has no preferential tax or fee policies
specifically for the digital economy. However, due to high-tech content in the digital
economy and the present combination of structure and inclusiveness, under the
background of unprecedented tax and fee reductions, taxpayers in the digital economy
have enjoyed generous tax and fee reduction policy dividends. From the current tax and
fee reduction policies, the preferential tax and fee policies related to the digital economy
are mainly innovation-related policies including encouraging high and new technology,
energy conservation and environmental protection, enjoying tax agreement treatments,
supporting the financial capital market, promoting the development of small and micro-
enterprises, upgrading culture, education and sports, improving people’s livelihoods,
supporting other undertakings, with tax incentives for nine major categories of relief and
120 relief items. In addition, taxpayers in the digital economy have enjoyed tax reductions
such as value-added tax reform and personal income tax reform [15].
4.2. Macro Analysis of Tax Cuts and Fee Reductions in the Digital Economy
With the implementation of Chinese larger-scale tax reduction and fee reduction
policy, every enterprise and taxpayer has actually enjoyed national tax reduction and fee
reduction dividends. Although the pandemic in 2020 has affected economic development,
the implementation of the tax reduction and fee reduction policies has played a dual role
in enhancing the vitality of market economy entities, reducing operating costs and
improving people’s livelihoods [16].
4.2.1. The Direct Effect of “from Tax-to-Tax Base”
The “scale effect” of tax cuts and fee reduction is prominent. Reducing the tax burden
on enterprises by substantially raising the threshold for small-scale taxpayers and
allowing small and micro-enterprises to enjoy tax exemptions will reduce the tax burden,
especially for private enterprises. Reducing the tax rate and stimulating market vitality by
reducing enterprise costs will enhance endogenous motivation and support innovation,
start-ups and enterprise investment. The triple tax rate is conducive to balancing the tax
burden on manufacturing, business and services and promoting real economic
development and economic transformation by promoting the reform of personal tax and
increasing residents’ disposable income to boost consumption. Strengthening the

Sustainability 2021, 13, 7611 11 of 21
substantive and universal tax reduction, reducing fees and further enhancing policy
effectiveness will actively promote the healthy growth and output of private and small
and medium-sized enterprises. Substantial tax cuts and fee cuts will further enhance
people’s sense of happiness, acquisition and security and will inject new vitality, new
impetus and new connotations into the construction of a modern socialist country [17].
4.2.2. Analysis of the Indirect Effects of “from Tax Base to Tax Source”
The vitality of micro-subjects not only affects the enthusiasm for consumption and
production and business activities, but also affects the taxation, employment and other
aspects, which in turn affects the economic vitality. Small and medium-sized enterprises
not only face difficulties financing and expensive financing but also have a heavy tax
burden [18]. Raising the threshold for small and medium-sized taxpayers will allow more
enterprises to enjoy tax incentives at lower rates and will support entrepreneurial
innovation and the development of small and micro-enterprises with more funding for
R&D and expanding reproduction so that private enterprises—especially small and
micro-enterprises—can enjoy tax and fee reductions and create a better environment for
enterprise development [19].
4.2.3. Analysis of the Macro Effects of “from Tax Source to Economy”
Excessively low taxes and fees make it difficult to achieve the strategic goal of
regulating the economy, adjusting the income gap and regulating the country, while
excessively high taxes and fees will increase the burden on microeconomic entities,
namely individuals and enterprises, thus restraining the enthusiasm of micro-
organizations for consumption, production and management activities, thus affecting the
economic vitality [20]. Therefore, taxes and fees should be adjusted based on differences
and changes in development stages, economic environment and strategic goals. China’s
implementation of large-scale tax cuts is not an expedient measure; instead, it is an
important guarantee and long-term benefit for the sustained and healthy development of
the Chinese economy. It is of great significance to maintaining steady and healthy
economic development, continuing to deepen and promote supply-side structural reform
and better play the role of fiscal policy in expanding domestic demand and structural
adjustment [21].
4.3. Empirical Analysis of Tax and Fee Reductions in the Digital Economy
To quantitatively analyze the effects of tax reduction and exemption policies in the
digital economy, this paper uses Stata software to conduct empirical analysis using tax
panel data from 2017–2019.
Data source: business income, total profit, research and development expenses, total
asset value, number of employees and tax reduction and exemption data in the account
book of tax reduction and exemption accounting.
Sample description: This article uses Stata software to conduct empirical analysis
using panel data from a province in 2017–2019. There are 19,515 digital economy
enterprises with annual business incomes of >10,000 RMB. According to the classification
of operating income, there are 842 large enterprises with an annual operating income of
20 million RMB and 18,673 small, medium and micro-enterprises.
Through the empirical analysis of digital economy and scientific evaluation of the
effect of tax and fee reduction policy in digital economy, it is possible to further optimize
policies and promote development.
4.3.1. Impact on Operating Income
The dependent variable is selected as operating income (YYSR)-reflecting the
company’s overall output and the independent variable selected as (1) operating cost
(YYCB)-reflecting the company’s cost input; (2) R&D investment (YF)-reflecting the

Sustainability 2021, 13, 7611 12 of 21
company’s innovation capability; (3) Tax deductions (JMSF)-reflecting the impact of tax
deductions (including tax deductions and tax deductions and new tax deductions in 2019).
Model construction:
XXSR = c +

1YYCB +

2YF +

3JMSF + ε
Table 2 shows the results of the Impact of Tax Reduction on Operating Income. To
better analyze the effect of tax reduction and fee reduction policies in the digital economy,
the model is calculated by multi-group data of all R&D sample enterprises, large
enterprises and small and medium-sized enterprises. The results show that the R-squared
of multi-angle data is >0.83, which indicates that the model has a high fitting degree and
the selected independent variables (operating cost, R&D investment and tax reduction)
can better explain the change in dependent variables (operating income) and the P values
of the respective variables of three groups of data are <0.1, which indicates that the
operating cost, R&D investment and tax reduction have a significant impact on the
operating income of digital economy [22].
Table 2. Impact of Tax Reduction
on the Operating Income
of Digital Economy Enterprises.
Groups
(1) (2) (3)
Digital Economy Large Enterprises Small and Medium-Sized
Enterprises
VARIABLES YYSR YYSR YYSR
YYCB 0.584 *** 0.581 *** 1.013 ***
(0.00925) (0.039) (0.00623)
YF 0.187 * 0.149 * 1.040 ***
(0.175) (0.749) (0.0468)
JMSF 0.530 * 0.534 * 0.285 ***
(0.0517) (0.217) (0.0453)
Constant 3,631,235 *** 67800000 *** 181.7 ***
(102,558.4) (4233914) (7490.80)
Observations 19,515 842 18,673
R-squared 0.9917 0.9915 0.8316
Number of id 10,354 319 10,035
Standard errors in parentheses, *** p < 0.01, ** p < 0.05, * p < 0.1.
According to the calculation results of large enterprises in the digital economy (2),
operating costs, R&D investment and tax reductions and exemptions have a significant
impact on the digital economy’s operating income and output. Among them, R&D
investment and tax reductions have a higher impact coefficient. This reflects that the tax
reduction of digital economy is 1 RMB and the operating income is increased by 0.534
RMB and the tax multiplier effect appears [23].
From the comparison of data calculation results, the influence coefficient of tax
reduction and fee reduction of large enterprises in the digital economy is higher than that
of micro, small and medium enterprises, which indicates that increasing the intensity of
tax reductions and fee reductions in the digital economy has a significant effect on the
industry’s development. The impact coefficient of tax and fee reductions is relatively small
and its pulling effect is weak. This is basically consistent with the fact that micro, small
and medium enterprises in the digital economy have relatively low technical content and
relatively little tax support [24].
4.3.2. Impact on Profits
The dependent variable is selected as the total profit (LRZE)-reflecting the
profitability of the enterprise and the independent variable is selected as (1) operating cost
(YYCB)-reflecting the cost input of the enterprise; (2) R&D investment (YF)-reflecting the
innovation ability of the enterprise; (3) Tax reduction and exemption (JMSF)-reflecting the

Sustainability 2021, 13, 7611 13 of 21
impact of tax reduction and exemption (including tax reduction and exemption amount
and new tax reduction and reduction in 2019).
Model construction:
LRZE = c +

1YYCB +

2YF +

3JMSF + ε
Table 3 shows the results of the Impact of Tax Reduction on Profits. To better analyze
the effect of tax and fee reduction policies in the digital economy, the model is calculated
from the multi-group data of all R&D sample enterprises, large enterprises and micro,
small and medium-sized enterprises. From the results of model calculation, the p-value of
independent variables (operating cost, R&D investment and tax reduction and exemption)
of multiple groups of data is basically <0.01, which indicates that the operating cost, R&D
investment (except for micro, small and medium-sized enterprises) and tax reduction
have a significant impact on the total profits in the digital economy. Compared with
micro, small and medium-sized enterprises, the influence coefficient of tax reduction on
the total profits for large enterprises in digital economy is higher than that of small and
medium-sized enterprises, which shows that tax cuts and fee reductions have a more
obvious effect on the profitability of large enterprises. The sense of acquisition of large
enterprises is easier to improve.
Table 3. Impact of Tax Reduction
on Profits
of Digital Economy Enterprises.
Groups
(1) (2) (3)
Digital Economy Large Enterprises Small and Medium-Sized
Enterprises
VARIABLES LRZE LRZE LRZE
YYCB −0.472 *** −0.475 *** −0.026 **
(0.01790) (0.07517) (0.01260)
YF 2.236 *** 2.337 * 0.0045
(0.33875) (1.448) (0.0946)
JMSF 6.952 *** 6.971 *** 0.388 ***
(0.10001) (0.4197) (0.0916)
Constant 1,501,827 *** 30,800,000 *** −34,255.76 **
(198,427.3) (8,187,251) (15,134.17)
Observations 19,515 842 18,673
R-squared 0.0668 0.0677 0.0012
Number of id 10,354 319 10,035
Standard errors in parentheses *** p < 0.01, ** p < 0.05, * p < 0.1.
However, the impact of R&D investment on the digital economy and micro, small
and medium-sized enterprises is different; it has a significant positive impact on the total
profits of large enterprises (2.337), whereas it has a small impact on micro, small and
medium-sized enterprises (0.0045), which shows that the ability of micro, small and
medium-sized enterprises to transform R&D investment into output is lower than that of
large enterprises. The process of growth among micro, small and medium-sized
enterprises requires the accumulation of early investments such as R&D and innovation.
The risk of R&D input and output of micro, small and medium-sized enterprises in the
entrepreneurial development stage is relatively high. Accordingly, they need policy
support and encouragement [25].
4.3.3. Impact on Investment
The dependent variable is selected as fixed assets (lngdzc)-reflecting the investment
of fixed assets and the independent variable as (1) total profit (lnlrze)-reflecting the profits
of the enterprise; (2) tax reduction (lnjmsf)-reflecting the influence of tax reduction and
exemptions. To eliminate the influence of the order of magnitude difference between
variables, the dependent variables and independent variables are logarithmic.

Sustainability 2021, 13, 7611 14 of 21
Model construction:
lngdzc = c +

1lnlrze +

2lnjmsf + ε
Table 4 shows the results of the Impact of Tax Reduction on Investment. To better
analyze the effect of tax reduction and fee reduction policy in the digital economy, the
model is calculated by multi-group data of all R&D sample enterprises, large enterprises
and micro, small and medium-sized enterprises. From the results of model calculation,
the p-values of independent variables (total profit, tax reduction and exemption) of
multiple groups of data are all <0.01, which indicates that the total profit and tax reduction
and exemption all significantly impact the investment of fixed assets in the digital
economy. Compared with micro, small and medium-sized enterprises, the influence
coefficient of tax cuts and fee reductions on fixed assets investment of micro, small and
medium-sized enterprises in the digital economy (0.0809) is higher than that of large
enterprises (0.064), which shows that tax cuts and fee reductions obviously promotes fixed
asset investment in micro, small and medium-sized enterprises. The micro, small and
medium-sized enterprises in the digital economy have a low degree of fitting, indicating
that other factors that affect the incomes of high-tech products of micro, small, medium-
sized enterprises have not been considered. Since the current model can meet the purpose
of modeling and analysis in this paper, there will be no further analysis of other factors
affecting the income of high-tech products of micro, small and medium-sized enterprises.
Table 4. Impact of Tax Reduction
on Investment
of Digital Economy Enterprises.
Groups
(1) (2) (3)
Digital Economy Large Enterprises Small and Medium-Sized
Enterprises
VARIABLES LNGDZCYZ LNGDZCYZ LNGDZCYZ
LNLRZE 0.029 * 0.035 * 0.027 *
(0.01773) (0.03816) (0.02016)
LNJMSF 0.075 *** 0.064 ** 0.0809 ***
(0.0125) (0.196) (0.01600)
Constant 11.521 *** 14.0055 *** 10.957 ***
(0.235) (0.5938) (0.2588)
Observations 1818 325 1493
R-squared 0.1527 0.1722 0.0241
Number of id 1251 185 1066
Standard errors in parentheses, *** p < 0.01, ** p < 0.05, * p < 0.1.
4.3.4. Impact on Employment
The dependent variable is selected as the number of employees (lncyrs)—reflecting
the employment situation of enterprises—and the independent variable is selected as (1)
operating income (lnyysr), which reflects the size of the enterprise’s output; (2) tax
reduction and exemption (lnjmsf), which reflects the impact of tax reduction. The
logarithm of dependent and independent variables is taken to eliminate the influence of
dimensional differences among variables.
Model construction:
lncyrs = c +

1lnyysr +

2lnjmsf + ε
Table 5 shows the results of the Impact of Tax Reduction on Employment. To better
analyze the effect of tax and fee reduction policies in the digital economy, the model is
calculated by the multi-group data of all R&D sample enterprises, large enterprises and
micro, small and medium-sized enterprises. From the results of the model calculation, the
P-value of the independent variables (operating income, tax reduction and exemption) of
the data is small, which indicates that the operating income and tax reduction significantly
impact the number of employees in the digital economy. From the calculation results,

Sustainability 2021, 13, 7611 15 of 21
operating income, tax reduction and exemption all significantly impact employment in
the digital economy. On the enterprise scale, the coefficients of tax cuts and fee reductions
on the employment absorption of large enterprises and micro, small and medium-sized
enterprises in the digital economy are similar, which shows that tax cuts and fee
reductions have basically the same effect on the promotion of employment by enterprises
of different sizes. The low P-value in the model calculation results indicates that the
independent variable has a more significant impact on the dependent variable but the R-
squared of the model is low, which indicates that other factors that affect the fixed assets
of digital economy enterprises have not been considered.
Table 5. Impact of Tax Reduction
on the Employment
of Digital Economy Enterprises.
Groups
(1) (2) (3)
Digital Economy Large Enterprises Small and Medium-Sized
Enterprises
VARIABLES LNCYRS LNCYRS LNCYRS
LNYYSR 0.071 *** 0.0635 0.0727 ***
(0.0216) (0.11674) (0.01066)
LNJMSF 0.0109 * 0.0875* −0.01987 ***
(0.0063) (0.5147) (0.0056)
Constant 0.3544 ** 0.9896 0.338 **
(0.1582) (2.0397) (0.13655)
Observations 13,377 550 12,827
R-squared 0.2147 0.0842 0.1088
Number of id 8891 296 8595
Standard errors in parentheses, *** p < 0.01, ** p < 0.05, * p < 0.1.
4.3.5. Impact on Revenue of High-tech Products
The selected dependent variable is high-tech product income (GXJSCPSR), which
reflects the output of digital economy high-tech products and the selected independent
variables are (1) operating income (YYSR), which reflects the scale of enterprise output;
(2) R&D expenditure input, which reflects enterprise innovation input; (3) tax reduction
(JMSF), which reflects the impact of tax reduction and exemption.
Model construction:
GXJSCPSR = c +

1YF +

2JMSF + ε
Table 6 shows the results of the Impact of Tax Reduction on Revenue of High-tech
Products. To better analyze the effects of tax and fee reduction policies in the digital
economy, the model is calculated using the multi-group data of all R&D sample
enterprises, large enterprises and micro-, small- and medium-sized enterprises. The
results show that the p-values of the variables of multiple sets of data are each <0.01, which
indicates that the R&D investment and tax reduction and exemption significantly
influence the income of high-tech products in the digital economy. This model can better
explain the changes in income from high-tech products. The influence coefficient of tax
cuts and fee reductions on high-tech products of micro-, small- and medium-sized
enterprises in the digital economy is higher than that of large enterprises; if taxes and fees
were reduced in the digital economy by 1 RMB, it would drive the income of its high-tech
products to increase by 2.512 RMB. Thus, the tax multiplier effect appears. The R-squared
calculated by the data is around 0.25, which indicates that digital economy companies
have a high degree of fitting.

Sustainability 2021, 13, 7611 16 of 21
Table 6. Impact of Tax Reduction
on the Revenue of High-tech Products
of Digital Economy
Enterprises.
Groups
(1) (2) (3)
Digital Economy Large Enterprises Small and Medium-Sized
Enterprises
VARIABLES GXCPSR GXCPSR GXCPSR
YF 2.849 *** 2.915 *** 1.987 ***
(0.14018) (0.5993) (0.1722)
JMSF 0.338 *** 0.335 * 2.512 ***
(0.04172) (0.1751) (0.67124)
Constant 1,029,010 *** 2.4200000 *** 6538.114
(74,654.53) (1,762,481) (33,057.94)
Observations 19,515 842 18,673
R-squared 0.2844 0.2528 0.2793
Number of id 10,354 319 10,035
VARIABLES GXCPSR GXCPSR GXCPSR
YF 2.849 *** 2.915 *** 1.987 ***
Standard errors in parentheses, *** p < 0.01, ** p < 0.05, * p < 0.1.
4.3.6.
Impact on R&D Investment
The dependent variable is selected as research and development expenses (lnyf,
reflecting the innovation input of digital economy and the independent variables are
selected as (1) operating income (lnyysr, reflecting the scale of enterprise output) and (2)
tax reduction (lnjmsf, reflecting the impact of tax reduction and exemption). To eliminate
the influence of the order of magnitude difference between variables, the dependent and
independent variables are logarithmic.
Model construction:
lnyf = c +

1lnyysr +

2lnjmsf + ε
Table 7 shows the results of the Impact of Tax Reduction on R&D Investment. To
improve the analysis of the effects of digital economy tax reduction and fee reduction
policy, this paper still conducts model calculations based on multiple sets of data from all
R&D sample companies (large companies and micro, small, medium-sized enterprises).
From the results of model calculation, the P-values of the variables of the multiple sets of
data are each <0.01, showing that both operating income and tax reduction and exemption
significantly impact R&D investment in the digital economy. This reflects that tax and fee
reductions in the digital economy have increased by 1%, which has driven R&D
investment to increase by 0.0253%.
Table 7. Impact of Tax Reduction
on the R&D Investment
of Digital Economy Enterprises.
Groups
(1) (2) (3)
Digital Economy Large Enterprises Small and Medium-Sized
Enterprises
VARIABLES LNYF LNYF LNYF
LNYYSR 0.556 *** 0.0635 * 0.5706 ***
(0.0792) (0.11674) (0.07710)
LNJMSF 0.0253 * 0.0875 * 0.04424 *
(0.0278) (0.5147) (0.0311)
Constant 4.2218 *** 0.9896 3.798 ***
(1.1720) (2.0397) (1.0685)
Observations 980 235 745
R-squared 0.4936 0.1418 0.3181
Number of id 623 114 509
Standard errors in parentheses, *** p < 0.01, ** p < 0.05, * p < 0.1.

Sustainability 2021, 13, 7611 17 of 21
5. Problems of Tax and Fee Reduction and Policies in China’s Digital Economy
5.1. Lack of Specialized Preferential Tax Policies for the Digital Economy
China has not yet formulated specialized preferential tax policies for the digital
economy. The preferential tax policies currently applied to digital economy enterprises
are mainly concentrated on the state: encouraging industries and products such as
preferential income tax for high-tech enterprises, additional deductions of R&D expenses,
preferential income tax rate for key software enterprises and immediate refunding of
value-added tax for software products, plus the programs for improving people’s
livelihoods and supporting small and micro businesses. In terms of the number of projects,
although >100 items are involved, they are scattered across various categories relatively
unsystematically.
5.2. Improvement on Preferential Tax Policies Needed to Encourage Innovation
Modern China’s digital economy enterprises face challenges of relatively archaic core
technology and the absence of core industries, which ultimately results from a lack of
innovation input and innovation ability. At present, the preferential tax policies for digital
economy enterprises’ income mainly focus on the achievement of transformation and the
introduction of advanced technology; less focus is placed on support for prior research
and development, which mostly benefits enterprises with strong innovation ability but
rarely covers enterprises that need immediate support in their incubation period [26].
Under the influence of such incentive-based policies, enterprises automatically attach
importance to importing advanced technology and making high-tech products, with an
inadequate input on key R&D. This leads to a series of problems: repeating the import of
assembly lines requires an excessive production capacity of end products and an
insufficient capacity for developing intermediate products, related products and some
important raw materials [27].
5.3. High Marginal Tax Rate for Personal Income Tax Unappealing to Talents
The global competition among digital economy enterprises is increasingly fierce; the
same is true of talent. Concerning the highest marginal tax rate for individual income tax,
it is too high in China to attract overseas top talents at up to 45%, compared with 37% in
the United States (2017), 33% in Canada and 38% in South Korea. Thus far, China has
introduced individual income tax concessions for talent and for specific regions
(Guangdong, Hong Kong and Macao); this context still prevents talented individuals from
working hard and innovating, which is attributed to the narrow coverage and high entry
barrier of tax concessions [28].
5.4. A Big Enterprise Income Tax Burden against International Competition
Over the past two years, digital economy enterprises’ income tax burden has
decreased significantly in China but the decrease in the United States has been even
greater. Based on the data obtained for the top 100 digital economy enterprises, the income
tax burden placed on China’s digital economy corporations in 2019 is up to 17.6%. In
contrast, that in the United States is 12.1%. In the fierce international market competition,
the income tax policies for Chinese corporations are neither competitive nor attractive.
6. Policy Recommendations for Tax and Fee Reductions in the Digital Economy
The world economy is witnessing more profound changes than any seen in any other
century. The Chinese economy is also in a critical period of economic restart after the
pandemic. It is urgent that it plays a leading role in the digital economy and continuously
enhances its economic innovation, competitiveness and sustainable development [29,30].
Through targeted research and literature review, this paper finds that research space
remains. Through empirical analysis of China’s “tax reduction and fee reduction” in
recent years and research evaluating its policy system, this paper aims to adjust the

Sustainability 2021, 13, 7611 18 of 21
research direction of tax policy according to the direction of tax policy changes. This paper
chooses the core industry perspective of the digital economy: based on economic theory,
it theoretically analyzes the relationship between “tax and fee reductions” and the
development of the digital economy industry to empirically study the policy effects of
China’s “tax and fee reductions.” With the continuous introduction of China’s tax and fee
reduction policies, such as the newly introduced preferential policies during the 2020
pandemic, there is still room for continuous research. It is necessary to analyze the
feasibility of implementing further tax and fee reductions based on theoretical and
empirical research results. In response to the challenges faced by the digital economy and
the tax-and fee-reduction policies, it is necessary to continuously improve and optimize
tax and fee policies to promote high-quality development of China’s digital economy and
help cultivate and develop a group of leading companies in the digital economy [31,32].
6.1. Optimizing the Tax and Fee Policy System Should Be Done in Coordination with the Digital
Economy Development Strategy
The digital economy represents the future direction of development and is therefore
of pressing importance. It is recommended to formulate a tax and fee reduction policy
system that conforms to the laws of digital economy development in accordance with the
characteristics and development status of the digital economy industry. It is necessary to
solidify the advantages of the existing tax and fee preferential policies that encourage
high-tech development. In addition, the formulation of tax cut and fee reduction policies,
in addition to fiscal and taxation tools, should differ from high-tech industrial policies. It
is recommended that fiscal appropriations, loan interest discounts and tax reduction and
rebate policies be used in a comprehensive manner to form a joint policy [33].
6.2. Increase Tax Incentives for New Enterprises
Entrepreneurship is both an important step in the transformation and
commercialization of scientific and technological achievements and an important conduit
of innovation. Entrepreneurship in the digital economy is risky and a considerable
number of new enterprises fail in their first few years. Based on the consideration of
entrepreneurial risk and the hope for the future prospects of new enterprises, many
foreign countries or regions attach great importance to tax support policies for new
enterprises such as the implementation of offsetting investment losses and tax credits with
other income for venture capital enterprises and the implementation of reduced tax rates
or tax deductions for new ventures [34]. Compared with foreign practices and
experiences, most current tax policies in China focus mainly on enterprises that have
basically solved their survival problems and have a certain foundation for development,
such as the 15% income tax reduction policy for high-tech enterprises and the policy of
additional tax deductions for enterprise R&D; this implies that such enterprises already
meet the preconditions for independent intellectual property rights of certain profitability
and income level and it is difficult for newly founded companies to meet the basic
requirements to enjoy these tax incentives [35].
6.3. Increase Tax Incentives for Employment-Related High-Level Talent
Talent is the key to both innovation in the digital economy and to improving its core
competitiveness. However, China’s current personal income tax system has a top tax rate of
45%, which fails to provide effective tax incentives for high-wage earners. To increase the
welfare of talent and stimulate talent innovation in the digital economy, salary for talented
individuals is increased given the low proportion of after-tax income and low marginal
utility of wages and salaries, which affects the incentive effect of talented individuals. A
burden is laid on talent motivation in the digital economy [36]. In addition, it is not
conducive to the expansion of employment and the placement of employment for digital
economy enterprises. In view of the characteristics of the digital economy industry and

Sustainability 2021, 13, 7611 19 of 21
talent, international enterprises generally offer high salaries to attract and retain talent.
Equity incentives and annuity systems have also become important aspects of enterprise
compensation systems and salaries in the digital economy are generally higher [37].
6.4. Increase Tax Incentives for Independent Innovation based on Research and Development
The development of the digital economy cannot be separated from independent
innovation. Most countries and regions have established R&D tax incentive systems with
indirect incentives and direct incentives as auxiliaries, such as pre-tax deductions of R&D
expenses, forward or backward carry-over and the extraction of scientific research
reserves. In contrast, China’s current tax policy has been greatly improved in this respect,
such as the pre-tax deduction policy for enterprise R&D expenses that has significantly
impacted digital economic innovation; nevertheless, it still needs further improvements
to give full play to the tax multiplier effect [38]. High-tech enterprises are often the main
body of R&D technology. The promotion of tax and fee reductions on enterprise R&D and
high-tech product income will effectively promote both the self-upgrading of enterprises
and industrial development [39].
6.5. Increase Investment to Promote the Transformation and Upgrading of Manufacturing
From a supply perspective, tax cuts and fee reductions will enhance market entities’
ability to expand investment [40]. Take China’s manufacturing industry as an example.
The tax revenue it provides accounts for about 30% of the total tax revenue and the value-
added tax it provides accounts for 60% of the total value-added tax. The expansion in scale
and the structural adjustment of the manufacturing industry are inseparable from those
of the logistics industry. For logistics companies that purchase a large number of machines
and equipment and build, renovate and expand logistics facilities during their period of
scale expansion, the tax reduction benefit from lowering the value-added tax rate is the
greatest. Clearly, lowering the tax rate has formed a two-way (upstream and downstream)
complementary incentive mechanism for the development of the real economy [41]. The
manufacturing industry has a strong function that is of extraordinary significance to
sustained economic prosperity and social stability [42]. Manufacturing companies should
seize the favorable opportunity of reducing taxes and fees and invest more funds in
innovative R&D and the expansion of reproduction, thereby promoting the
transformation and upgrading of the entire industry, enhancing competitiveness,
alleviating downward pressure on the economy and enhancing resistance ability [43].
Supplementary Materials: The following are available online at www.mdpi.com/2071-
1050/13/14/7611/s1, Table S1: Comparative data between China and the United States shown in this
research.
Author Contributions:
Conceptualization, T.L.; methodology, L.Y.; software, L.Y.; validation, L.Y.;
formal analysis, L.Y.; investigation, T.L. and L.Y.; data aggregation, L.Y.; writing—original draft
preparation, L.Y.; writing—review and editing, T.L. and L.Y.; All authors have read and agreed to
the published version of the manuscript.
Funding: This research received no external funding.
Data Availability Statement: The main operating income, operating cost, operating profit,
operating profit rate and operating cost rate are in the annual report data of the Wind database
(Supplementary materials).
Conflicts of Interest: The authors declare no conflict of interest.

Sustainability 2021, 13, 7611 20 of 21
References
1. China Institute of Information and Communications Technology. White Paper on Digital Economic Development and Employment
in China; China Institute of Information and Communications Technology: Beijing, China, 2019.
2. Brandt, L.; Biesebroeck, J.V.; Zhang, Y. Creative accounting or creative destruction? Firm-level productivity growth in Chinese
manufacturing. J. Dev. Econ. 2012, 97, 339–351.
3. Yang, Y.; Zheng, L.; Xiaoqian, Y. Challenges and Solutions of Enterprise Income Tax in Digital Economy—Based on the
International Comparative Perspective. Friends Account. 2018, 7, 73–79.
4. Auerbach, A.J. The Bush Tax Cut and National Saving. Natl. Tax J. 2002, 55, 387–407.
5. Reed, W.R. The Robust Relationship between Taxes and US State Income Growth. Natl. Tax J. 2008, 61, 57–80.
6. Lisan, Z.;Zinan,W.Analysis on the Relationship between Income Tax Incentives and R&D investment based on Enterprise
Profitability.DOI:10.19376/j.cnki.cn11-1011/f.2020.05.018.Tax Res. 2020,5,113-119.
7. Yeguang, C.; Jing, W. Research on the effect of Income Tax R&D Expenses Plus Deduction Policy based on China’s Three
Economic Zones.DOI：10.19376/j.cnki.cn11-1011/f.2020.02.016. Tax Res. 2020,2,92-98.
8. Bell, A.M.; Chetty, R.; Jaravel, X.; Petkova, N.; Van Reenen, J. Do Tax Cuts Produce More Einsteins? The Impacts of Financial Incentives
vs. Exposure to Innovation on the Supply of Inventors; NBER Working Paper No. 25493; NBER: Cambridge, MA, USA, 2019
9. Baum, D.N. Economic Effects of Including Services in the Sales Tax Base: An Applied General Equilibrium Analysis. Public
Financ. Rev. 1991, 19, 166–192.
10. Surong, W.; Bo, F. Analysis of the P olicy Effect of Value-added Tax Transformation. Econ. Res. Guide 2011.
11. Husheng, W. Research on the Construction of Tax Expenditure System Based on Efficiency Optimization. Tax Res. 2020.
12. Helms, L.J. The Effect of State and Local Taxes on Economic Growth: A Time Series Cross Section Approach. Rev. Econ. Stat.
1985, 67, 574–582.
13. Jianfu, S.; Jia, H. Analysis of the Effect of Tax Preference on the Development of Integrated Circuit Enterprises in China. Tax
Res. 2020.
14. Chao, H. Analysis of Tax Preferential Policies in China’s Integrated Circuit Industry. Tax Res. 2020.
15. Gentry, W.M.; Ladd, H.F. State Tax Structure and Multiple Policy Objectives. Natl. Tax J. 1994, 47, 747–769.
16. Degang, L.; Lingjiang, G. Path optimization of tax reduction and fee reduction in the new era. Tax Res. 2020.
17. Daixin, H. Challenges and Countermeasures in implementing larger scale tax reduction. Tax Res. 2019.
18. Surong, W.; Fang, Y. Tax reduction and fee reduction: Mechanism, measures and micro effects. Financ. Res. 2020.
19. Bin, Z. Theoretical dimension, policy framework and realistic choice of tax reduction and fee reduction. Financ. Res. 2019.
20. Christina, D.; Romer, D.; Romer. Do Tax Cuts Starve the Beast? The Effect of Tax Changes on Government Spending Brookings Papers on
Economic Activity; Economic Studies Program; The Brookings Institution: Washington, DC, USA, 2009; Volume 40, pp. 139–214.
21. Kun, Y.; Zhen, J. Key points and policy suggestions for implementing strategic tax reduction. Tax Res. 2019.
22. Auerbach, A.J. Tax Reform and Adjustment Costs: The Impact on Investment and Market Value. Int. Econ. Rev. 1989, 30, 939–962.
23. Francois, G.; Miao, J. Transitional Dynamics of Dividend and Capital Gains Tax Cuts. Rev. Econ. Dyn. 2011, 14, 368–383.
24. Angelopoulos, K.; Economides, G.; Kammas, P. Tax-spending Policies and Economic Growth: Theoretical Predictions and
Evidence from the OECD. Eur. J. Political Econ. 2007, 23, 885–902.
25. Leiming, Y.; Bo, Z.; Yu, S.; Tan, Y. Analysis of the effect of substantial tax reduction: From the perspective of preventing and
resolving major economic risks. Tax Res. 2020.
26. Zhang, L.; Chen, Y.; He, Z. The effect of investment tax incentives: Evidence from China’s value-added tax reform. Int. Tax
Public Financ. 2018, 25, 913–945.
27. Pingfang, Z.; Weimin, X. Effects of the Government’s Science and Technology Incentive Policy on R&D Input and Patent Output
of Large and Medium-sized Industrial Enterprises—An Empirical Study of Shanghai. Econ. Res. 2003.
28. Allingham, M.G.; Sandmo, A. Income Tax Evasion: A Theoretical Analysis. J. Public Econ. 2010, 3, 201–202.
29. Zheng, W.P.; Zhang, J. Does tax reduction spur innovation? Firm-level evidence from China. Financ. Res. Lett. 2021.
30. Liping, D. The concept of tax reduction with Chinese characteristics. Contemp. Financ. Econ. 2019.
31. Xu, J.; Wei, W.X. The effects of tax and fee reduction policy on mitigating shock of the COVID-19 epidemic in China. Appl. Econ.
2021.
32. Brennan, G.; Buchanan, J.M. The Power to Tax: Analytical Foundations of a Fiscal Constitution. South. Econ. J. 1980, 48, 221–225.
33. Jiancheng, G. Tax reduction, economic growth and market interest rate. Macro Res. 2019.
34. Levinsohn, J.; Petrin, A. Estimating Production Functions Using Inputs to Control for Unobservables. Rev. Econ. Stud. 2003, 70,
317–341.
35. Chaoji, Y. A new round of tax reduction to promote the development of private enterprises. Theor. Discuss. 2020.
36. Gobey, M.; Matikonis, K. Small business property tax reductions and job growth. Small Bus. Economics 2021, 56, 277–292.
37. Wang, Y.; Yao, Y. Sources of China’s Economic Growth 1952-1999: Incorporating Human Capital Accumulation. China Econ.
Rev. 2003, 14, 32–52.
38. Cangfeng, W. Tax Relief and R&D Investment: An Empirical Analysis Based on the Data of Chinese Manufacturing Enterprises.
Tax Res. 2009.
39. Yang, C.-H.; Huang, C.-H.; Chang, W.-H. Does Reduction in the Tax Credit Rate Retard R&D Activity? Evidence from Taiwan’s
R&D Tax Cred-It Reform in 2010. Contemp. Econ. Policy 2021, 398–415, doi:10.1111/coep.12506.

Sustainability 2021, 13, 7611 21 of 21
40. Liu, Y.; Mao, J. How Do Tax Incentives Affect Investment and Productivity? Firm-Level Evidence from China. Am. Econ. J. Econ.
Policy 2019, 11, 261–291.
41. Khastar, M.; Aslani, A.; Nejati, M. How does carbon tax affect social welfare and emission reduction in Finland? Energy Rep.
2020, 6, 736–744.
42. Kim, S.; Park, J.-H. Dynamic factor adjustment and corporate tax reduction in the Japanese manufacturing industry. J. Asia Pac.
Economy 2020.
43. Seip, K.L. Does tax reduction have an effect on gross domestic product? An empirical investigation. J. Policy Modeling 2019, 41,
1128–1143.