The Influence of Changing Emission Charge into Environmental Tax on Firms’ Tax Avoidance

Abstract

AbstractThe change of tax structure and the increase of firms’ environmental tax burden caused by the change of emission charge into environmental tax are transmitted to firms’ income tax, which has an impact on the level of firms’ tax avoidance. This paper takes the implementation of Environmental Protection Tax Law (EPTL) in China as a quasi-natural experiment and adapt Differences-in-Differences model based on Propensity Score Matching (PSM-DID) to study the influence of changing emission charge into environmental tax on the firms’ income tax avoidance. It is found that: first, the tax avoidance of heavily polluting firms is aggravated by the implementation of EPTL. Second, the group regression shows that compared with the firms’ in regions with unchanged charging rate, the level of firms’ tax avoidance in regions with increased charging rate is more significantly affected by this policy. The conclusions of this paper have important theoretical significance and practical value for government departments to evaluate the potential impact of tax policy and environmental protection policy.KeywordsTax avoidanceEnvironmental taxTax collection and management