Abstract: High quality development is the important support for building Chinese path to modernization, and enterprise digital transformation is an important driving force for China’s high-quality economic development, while alleviating firms’ cost burden during the digital transformation processthrough tax and fee reduction is the key of the policy support. Taking the VAT rate reduction policy issued in May of 2018 as an entry point, this paper uses the sample data of A-share listed companies in China’s Shanghai and Shenzhen stock markets from 2016 to 2020 to conduct an empirical analysis of the impact of the tax reduction policy on enterprises’ digital transformation and the action mechanism. The results show that the implementation of the VAT rate reduction policy could promote the digital transformation of enterprises significantly, but the policy effect of the VAT rate reduction is not significant in the year of 2018 and the prior years, while in the yearsof 2019 and 2020 it is more significant.In terms of the specific mechanism, the VAT rate reduction can promote the digital transformation of enterprises through the intervening mechanism of easing firms’ financing constraints on one hand, on the other hand, it can promote the digital transformation of enterprises through the intervening mechanism of increasing the proportion of fixed asset investment. In the future, it is necessary to further optimize the VAT rate reduction policy system, implement and put into effect of the related and detailed policies, reduce the cost burden of the enterprises during the process of digital transformation through tax reduction policies, and enhance enterprises’ long-term business confidence, so as to promote the digital transformation of the enterprises.

Key words: tax reduction policy, reduction of VAT rate, digital transformation of enterprise, financing constraints