Corporate Income Tax Rate Research Articles

Can changes in corporate income tax rate affect corporate innovation?

The relationship between corporate income tax rates and innovation is a critical international issue. Existing studies often overlook the potential mechanisms of market competition and productivity heterogeneity. This paper addresses these gaps by integrating these elements into a unified mathematical analysis framework. Using China's corporate income tax reform as a quasi-natural experiment, this study empirically tests the model. The findings reveal that decreases in tax rates significantly foster innovation, while increases have the opposite effect. The underlying mechanism involves market competition, with the impact of tax changes being more pronounced in firms with higher productivity. This study deepens the understanding of the nexus between corporate income tax and innovation, providing new insights to refine tax policies that promote innovative economic development globally.

Can reducing corporate income tax rates decrease tax avoidance?

This research aims to examine and analyze the effect of reducing corporate income tax rates on tax avoidance practices carried out by non-cyclical consumer sector companies. This research involves secondary data analysis using the Panel Data Regression approach with 6 research samples taken from the non-cyclical consumer sector on the LQ45 index for the 2018-2022 period. The total sample used in the study amounted to 30 observations based on purposive sampling. The test results show that reducing the corporate income tax rate positively and significantly affects tax avoidance practices in non-cyclical consumer sector companies on the LQ45 index. This research is expected to encourage the government to formulate other tax incentive policies and provide insights into the effectiveness of the implemented tax policies. One of the expected objectives of companies utilizing tax incentives is to accelerate the economic growth of society. Lower tax burdens are hoped to encourage companies to expand their businesses and potentially absorb more labor, triggering multiplier effects in the economic sector to advance public welfare. In terms of literature, this research contributes to enriching the discussion about the effect of reducing corporate tax rates on companies' tax avoidance, and it is expected to contribute to the development of tax accounting literature.

Effectiveness of tax incentives in optimizing corporate income tax revenue: Case study public listed company tax office

Tax revenue is a key component of the Indonesian State Budget (APBN) and plays a strategic role in national development. This study aims to analyze the impact of the implementation of the income tax rate reduction policy and tax incentives based on Law Number 7 of 2021 on Harmonization of Tax Regulations (UU HPP) on corporate income tax revenue at Public Listed Company Tax Office. The research methodology used is qualitative descriptive, with primary data obtained through interviews with tax officials and tax consultants, and secondary data from tax revenue documentation and related literature. The findings show that the reduction in corporate income tax rates and the provision of tax incentives for publicly listed companies significantly impact the optimization of tax revenue at the Public Listed Company Tax Office. The largest contribution to corporate income tax revenue comes from companies listed on the Indonesia Stock Exchange (IDX), with a dominant contribution from companies conducting Initial Public Offerings (IPOs). The study also identifies several factors affecting the optimization of corporate income tax revenue, including tax awareness and corporate tax morale. These findings provide important insights into how tax policies can be optimized to improve taxpayer compliance and tax revenue, as well as their contribution to national economic growth.

Smart Answers to GLoBE Challenges Faced by a Small Country

In this note, the authors highlight the challenges that Hungary, a small country with a low corporate income tax rate, faced in implementing Pillar Two. The intention was to comply with the global minimum tax rules while keeping as much of the country’s attractiveness to foreign investors as possible at the lowest cost to the state budget. This was achieved by a range of targeted measures which may serve as a best practice for other countries in a similar situation.

The High Cost of Raising Provincial Tax Revenues Has Gotten Even Higher

Households and firms’ responses to higher tax rates alter the volume and the allocation of land, labour and capital in the economy, reducing our income and consumption opportunities. These economic losses from raising tax revenues have increased for provincial governments across Canada in the last decade with the problem being especially acute in Newfoundland and Labrador, Ontario and British Columbia. However, by lowering personal and corporate income tax rates and shifting more of the tax burden to a sales tax harmonized with the federal GST, the provinces could lower the economic cost of raising tax revenues. Taxpayers’ responses to higher tax rates adversely affect the economy. When rates go up, people are less inclined to save for the future because they must pay higher taxes on interest and dividends, and workers react by avoiding overtime and retiring early. When returns on investment generate higher taxes for corporations, they respond by cutting back their capital expenditures. Also, when people and companies can avoid paying a tax by shifting income or consumption to another jurisdiction with lower tax rates, the tax base will shrink as the tax rate goes up, reducing both income and consumption opportunities — an effect known as the deadweight loss from taxation. The larger the tax base, measured as a share of tax revenues, the greater the deadweight loss from a tax-induced decline in the tax base. All of these reactions to higher tax rates change the volume and allocation of land, capital and labour in the economy. The societal cost from raising extra revenue through a small tax rate increase is called the marginal cost of public funds (MCPF). It can be used to determine which taxes are causing the greatest welfare losses and to measure the gains from shifting the tax burden from the high-cost sources of tax revenues to those that impose a lower deadweight loss. Public projects should use the MCPF in doing a cost-benefit analysis, comparing the project’s benefits with the welfare loss from financing the project through higher taxes. The more reactivehousehold and business decisions are to tax rates, the greater the MCPF. When sales taxes are applied to a wide range of goods and services, people are limited by how much they can change their spending patterns to avoid paying those taxes. Thus, revenue is generated with lower detrimental economic effects than those created by increased personal and corporate income tax rates. Provinces could reduce the problems created by the public’s incentive to avoid paying taxes by both lowering their personal and corporate income tax rates and moving the tax burden over to a general sales tax.

Save It for a Rainy Day: Evidence from State Corporate Income Tax Rate Changes

ABSTRACT We examine the effect of state corporate income tax rate changes on firms’ liquidity management. Using a difference-in-differences design, we find that firms hold more cash when they are experiencing an increase in state corporate income tax rate. More specifically, on average, a 1 percent increase in state corporate income tax rate leads to a 2.51 percent increase in firms’ average cash holdings. We also find that the effect is stronger in firms with low and risky cash flows, more growth opportunities, and more financial constraints. We find no evidence of this relationship when the state corporate income tax rate decreases. Overall, these findings suggest that firms conserve more cash to mitigate tax-induced frictions, which is consistent with the precautionary motive of cash holdings. Our paper speaks to policymakers that the increase of state income tax rate has real effects on firms’ cash holdings. Data Availability: All data used in this study are from publicly available sources. JEL Classifications: H25; H710; M41; G33.

Tax Heterogeneity and Misallocation

There is substantial asymmetry in effective corporate income tax rates across firms. While tax asymmetries would reduce productivity in frictionless economies, they can improve efficiency in a distorted economy if taxes alleviate other economic frictions. We develop a framework to estimate to what extent tax asymmetries affect productivity in distorted economies. Using US firm-level balance sheet data alongside measures of effective marginal tax rates, we find a positive correlation between tax rates and factor productivity, suggesting that tax asymmetry exacerbates the distortions from other economic frictions. Eliminating tax rate asymmetries would raise aggregate productivity by 3 to 4 percent if taxes distort capital costs alone. Models where taxes also distort the marginal cost of labor predict potential gains as high as 9 percent.

Fiscal Policy to Encourage Investment in the Marine Logistics Sector

The marine logistics sector plays a crucial role in a country's economic growth, particularly for archipelagic nations like Indonesia. However, investment levels in this sector remain low, which can hinder potential economic growth. This research aims to analyze various fiscal policies that can encourage investment in the marine logistics sector. The methods used in this research are qualitative and quantitative descriptive analysis. The results indicate that fiscal policies such as tax incentives, subsidies, and government funds allocated for maritime infrastructure development can increase the attractiveness of investment in this sector. Tax incentives, such as reductions in corporate income tax rates, exemptions or reductions in import taxes for equipment, and tax allowance facilities, can be effective instruments to attract investment. Subsidies, such as capital assistance, low-interest loans, and operational cost compensation, can also help reduce investment risks and encourage investor participation. Additionally, adequate allocation of government funds for the development of maritime infrastructure, such as ports, docks, and other logistics facilities, is crucial for enhancing the sector's efficiency and competitiveness. However, fiscal policies alone are not enough. Improved regulations and better law enforcement are also necessary to create a conducive investment climate in the marine logistics sector.

The employment effects of corporate income tax and the bargaining power of labor unions

This study analyzes how the relationship between corporate income tax and employment varies according to the bargaining power of labor unions. To this end, we use a dynamic general equilibrium model to examine corporate income tax and the bargaining power of labor unions based on a span-of-control model. Previous studies on the relationship between corporate income tax and employment are inconclusive and do not examine the role of the bargaining power of labor unions in this relationship. Calibrated results obtained using data from Korea show that a reduction in only the corporate income tax rate slightly decreases total employment, but a reduction in the corporate income tax rate accompanied by a decline in the bargaining power of labor unions significantly increases total employment.

Commercial banks’ capital structure and performance in Vietnam: Panel data model approach

The study delves into the factors that influence the capital structure of commercial banks in Vietnam. Capital structure, measured by the net debt-to-asset ratio, is a key indicator of bank leverage. The study uses pooled OLS, fixed effects, and random effects models to analyze the impact of factors such as net interest-earning rate, Corporate Income Tax rate, and liquidity on commercial banks’ profitability and their capital structure. Data from 26 banks during the 2010–2022 period in Vietnam was collected for the analysis. The results indicate that factors such as Tax, ROA, growth, and liquidity have significant impacts on the capital structure of the banks. Specifically, Tax has a beta coefficient of –0.05967, ROA has a beta of –0.01796, growth has a beta of 0.000509, and liquidity has a beta of –0.00045. The study found that ROA, Tax, and liquidity are negatively related to the capital structure of Vietnamese commercial banks, meaning that an increase in these factors leads to a decrease in the banks’ total debt-to-total assets and vice versa. The empirical results suggest that commercial banks can manage their capital structure through these factors to reduce their debt-to-asset ratio, resulting in reduced credit risk, improved asset quality, and increased business efficiency. However, lowering the debt-to-asset ratio may also lead to reduced profits from lending activities, particularly when interest rates are high.

Effective corporate income taxation and its effect on capital accumulation: cross-country evidence

Abstract It is debated to what extent corporate taxation discourages capital formation, and the related empirical cross-country evidence is inconclusive. This paper provides new insights into this matter for a large sample of developed and developing countries. In the first step, national accounts data is used to calculate backward-looking effective corporate income tax rates (ECTR) for 77 countries during 1995–2018. In the second step, dynamic panel data regressions are used to estimate the effect of ECTR on aggregate corporate investment. The main findings of this exercise are that (i) statutory corporate income tax rates (SCTR), on average, are twice as high as ECTR, (ii) average ECTR has been relatively stable but show distinct dynamics across countries and (iii) no significant negative relationship exists between ECTR and investment. The latter finding is robust to different specifications and samples and when publicly available SCTR or forward-looking effective tax rate measures are used as alternative tax rate proxies.

Do Tax Rates Encourage Profit Shifts By Multinational Companies In Indonesia?

Due to the COVID-19 pandemic, many companies have experienced a decline in financial performance which has the potential to cause financial difficulties. While the government has provided stimulus to help, there are concerns about increasing tax avoidance efforts and profit-shifting practices with businesses transitioning to digital models. However, there is a view that companies may prefer ethical behavior to safeguard their reputation in the midst of a crisis. This study analyses profit-shifting behaviour by multinational companies in Indonesia before and during the COVID-19 pandemic, focusing primarily on the effect of differences in Indonesia's income tax rates on average rates in countries where the group of companies operates. Descriptive analysis is used in this study to provide an overview and general information about the data obtained in the field which is a research variable and will be used as analysis material to answer research questions. The research sample involved 163 companies listed on the Indonesia Stock Exchange and met certain criteria, such as the calculation of corporate income tax according to the Income Tax Law and the exclusion of certain sectors. Data was analyzed for the period 2017-2022, covering the period before and during the COVID-19 pandemic, as well as changes in tax rates in Indonesia. The results show that the difference in Indonesia's corporate income tax rate with the average tax rate in the country where multinational companies operate has a negative and significant effect on profit before tax.

법인세 인하가 기업 투자를 촉진하는가: 조세조정 토빈q 모형을 사용한 실증분석

This paper is to investigate the effect of corporate income tax on business investment by using panel data of Korean companies between 1983 and 2022. This paper estimates tax term in the tax-adjusted q model before and after economic crisis.
 The tax term estimation between 1983 and 1997 shows that the effect of corporate income tax rate on investment was strong before Korean financial crisis. Corporate income tax cut promoted significantly business investment. The estimation between 1998 and 2010 after Korean financial crisis shows that corporate income tax cut promoted moderately business investment. But the estimation between 2011 and 2022 shows that the effect of corporate income tax rate on investment is insignificantly small. Corporate income tax cut promote barely business investment after global financial crisis in 2008.
 Empirical results in this paper provide the new perspective on the corporate income tax policy. The Effect of the corporate income tax cut policy on business investment decreases rapidly as tax rate decreases and tax rate cut reduces the effect of tax incentive policy, such as investment tax credit and depreciation savings on investment.

Differential taxation in agricultural credit market

AbstractThis study examines whether the market competitiveness of farm loan suppliers is affected by the US tax policy for the farm credit system (FCS) and its potential spillover on the farmers' cost of borrowing. We exploit the variation in the corporate income tax rate to estimate its relationship with the farm debt share of the FCS and the potential spillover effect on the estimated cost of borrowing for agricultural loans. Results suggest that a 10% rise in the state (federal) tax rate is associated with an increase in FCS's total farm debt market share by 1.76% (3.76%). A 10% rise in the FCS total farm debt market share tends to increase the cost of borrowing on agricultural loans by 0.06%. Overall, the findings imply that favorable tax treatment could increase FCS' competitiveness in the agricultural lending market. Also, an increase in the interest rate on farm debt is correlated with the increasing market share of FCS in the agricultural credit market. [EconLit Citations: Q14, N22, H2, H7, G21].

Role of Policies on Economic Feasibility of PV Projects

This paper utilizes solar radiation data of 25 locations in Oman to investigate economic viability of PV projects considering different market conditions. The study investigates the effects of corporate income tax rate, capital cost allowance, and greenhouse gas reduction credit on the feasibility of a typical 5 MW PV power plant at each of the 25 locations. The results show that despite the generous taxation rate in Oman, taxes represent a big burden on renewable energy projects investors; therefore could hinder investments in this sector when capital cost allowances are not considered in tax calculations.

Minimizing Disguised Equity as Mandated by the Income Tax Law of Indonesia

The Indonesian government has limited the Debt-to-Equity Ratio (DER) to a maximum of 4:1 since the 2016 tax year and reduced the corporate income tax rate from 25% to 22% since the 2020 tax year. I compared data on public companies in Indonesia and Thailand to see the impact of reducing tax rates to reduce Tax Avoidance and reduce Disguised Equity. I also analyzed the findings of eleven previous studies regarding the effectiveness of DER restrictions in Reducing Tax Avoidance and Disguised Equity. As a result, a decrease in the tax rate has not been correlated with tax avoidance and DER. DER restrictions, although effective in reducing Disguised Equity, are ineffective in boosting tax revenues through company capital structure changes because with a DER limit of 4:1, companies still have room for tax savings. The DER limit of 4:1 is still higher than the average DER in sample companies of 0.3:1. Therefore, I suggest that the government immediately implement interest cost limitation regulations with the Interest Expense Limitation Based on EBITDA provisions as recommended by the OECD. I simulated changes in interest cost financing restrictions for companies listed on the Indonesia Stock Exchange between 2016 and 2021 if using a DER limit of 4:1 and if using Interest Expense Limitation Based on EBITDA. As a result, the government can increase potential tax revenues significantly.

The effect of low rate of corporate taxation on foreign direct investments (FDI) and gross domestic product (GDP): A case study of ten selected countries (2018-2022)

This research was undertaken to examine the effect of low corporation tax rate on Foreign Direct Investment (FDI) inflow and Gross Domestic Product (GDP). Investors and multinational firms are very rational and therefore prefer to invest in countries where the cost of taxation will be at the barest minimum to maximize their profit. The study aimed to critically analyze the Corporate Income Tax (CIT) rates of the randomly selected countries of the world, and their respective impacts on FDI and GDP. The study is descriptive in nature, based on quantitative data, sourced from various reports of Statutory Corporate Income Tax Rates of Tax Foundation, World Bank and UNCTAD World Investment Report of 2022. Ex-post Facto research design was deployed; while data were analyzed with a General Linear Model of Multivariate Analysis of Variance (MANOVA) with the aid of SPSS version 25. The study found that low rate of corporation tax has a positive and significant effect on FDI as well as on GDP. That is, CIT rate is a dominant determinant for FDI and GDP of countries.

Firms’ Responses to Changes in Corporate Income Tax Rates: A Retrospective of Colombia’s Tax Reforms

Firms’ Responses to Changes in Corporate Income Tax Rates: A Retrospective of Colombia’s Tax Reforms

Taxation Policies and Profitability of Deposit Money Banks in Nigeria

This study investigated the effect of taxation policies on the profitability of deposit money banks in Nigeria. The ex-post facto research design was employed to assess the effects over the period 2013 to 2022. The sample size comprised five major Nigerian banks (Zenith Bank, Access Bank, UBA, FCMB, and Fidelity Bank) selected using a non-probability sampling technique. Data were sourced from published audited financial statements available on bank websites, the Nigerian Stock Exchange, and the Federal Inland Revenue Service. Variables included ROA as the dependent variable, and Corporate Income Tax (CIT), Value-Added Tax (VAT), and Withholding Tax (WHT) as independent variables. The study employed panel data Ordinary Least Square (OLS) regression on EViews version 12 for analysis. The results indicated that a higher Corporate Income Tax (CIT) rate, with a coefficient of -0.903132 and a p-value of 0.0000, had a significant and negative effect on bank profitability. In contrast, Value Added Tax (VAT) exhibited a coefficient of 0.287309 with a non-significant p-value of 0.6276. However, Withholding Tax (WHT), with a coefficient of -3.286051 and a p-value of 0.0200, significantly reduced bank profitability. The study concluded that CIT and WHT policies directly influenced bank profitability, underscoring the need for balanced tax policy decisions. VAT showed no direct effect due to the indirect intermediary role of banks. Recommendations include reviewing CIT and WHT policies concerning the banking sector, ensuring VAT policy transparency, and considering incentives or exemptions to maintain industry stability. The study contributed by emphasizing tax policy effects on the financial sector and informed balanced taxation approaches.

ФОРМУЛЬНОЕ РАСПРЕДЕЛЕНИЕ: ВОПРОСЫ ТЕОРИИ

The current international tax system, which is based on separate accounting for corporate affiliates trading at arm’s length prices, is increasingly viewed as prone to abuse. Multinational enterprises have become adept at manipulating the rules of the current system to shift profits from high-tax to low-tax (or no-tax) jurisdictions. At the same time, each country’s law sets corporate income tax rates as well as bases, which may be eroded by tax incentives provided via legislation or ministerial discretion. These laws are further overlaid by a network of bilateral tax treaties, which alter the tax treatment of investment depending on the particular source and residence countries involved. This makes administration and enforcement of the corporate income tax costly, especially for developing country governments. Corporate compliance costs also increase with complexity. One fundamental reform proposal is to replace the current system of separate accounting by formulary apportionment.