Abstract: The mechanism of tax policy on productivity of China's service industry was discussed in this paper firstly.Then, based on the cross-province panel data of the year of 2001 to 2008, the author measured the changes of Total Factor Productivity (TFP) of China's service industry, and studied the influence of the tax preference policy to the TFP of the service industry.The research shows:firstly, TFP of China's service industry of the year of 2001 to 2008 varied slimly;secondly, tax preference policy could greatly promote TFP and technical efficiency of China's service industry;thirdly, tax preference policy did not perform too well on the technical improvement of China's service industry, and the effect of the tax incentives on the creative investment is not very sound.Therefore, enlarging the technical investment of China's service industry and strengthening the support of the creative investment should be the key point of the future tax policy.