Depreciation Policy Research Articles

Tax incentives and corporate digital transformation: Evidence from China’s accelerated depreciation policy

Corporate digital transformation is a significant path for industrial upgrading and sustainable development. This study employs China’s accelerated depreciation (AD) policy as a quasi-natural experiment to explore the impacts of tax incentives on the digital transformation of enterprises. Using panel data of China’s listed companies from 2010 to 2019, we find that AD policy significantly promotes firms to engage in digitization practices through the channels of firm investment and firm innovation. We also find that the policy effects are more pronounced for firms with a higher level of digitization, firms with stronger financial constraints, non-state-owned enterprises, and firms located in East China. Moreover, we also present a positive relationship between digital transformation and firm performance. Our study supplements the literature on the determinants of digital transformation and provides insights into how tax policy shapes firms’ incentives to be more digitized.

The green bonus of tax incentives: Evidence from China

Using a novel dataset covering over one million firm-level energy consumption entries from 2007-2016, we employ a difference-in-differences approach to estimate the causal effect of tax incentives on carbon emission intensity by exploiting China’s staggered implementation of accelerated depreciation policies for fixed assets in 2014 and 2015. We find that the accelerated depreciation policy leads to a significant 9.19% reduction in carbon emission intensity, equivalent to 0.11 tons of carbon emissions per 10,000 RMB of industrial value added. The policy effect is more pronounced for large firms, those with medium-term assets, and in regions with greater market integration and industrial agglomeration. Our firm-level analysis reveals that the policy reduces energy consumption, promotes a shift towards a cleaner energy portfolio and increases R&D investments in abatement technologies, as well as climate-friendly innovations. The above results show high consistency with verification at the aggregation level using satellite-based observations. Our findings highlight the potential of well-designed fiscal policies to contribute to global climate action efforts in developing economies.

ACTUAL ISSUES OF REPRODUCTION OF FIXED ASSETS OF DOMESTIC ENTERPRISES

The article touches upon topical issues of reproduction of fixed assets of domestic enterprises in terms of their accounting, audit and strategic aspects of management. The study emphasises the necessity of constant renewal of fixed assets to ensure competitiveness, increase of labour productivity and quality of products. The main purpose of the study is to identify the key problems of managing the reproduction of fixed assets and formulate ways to solve them. To achieve the research objective, the methods of analysis and synthesis, comparative analysis and empirical methods were used. The paper emphasises the importance of improving accounting and auditing, considers the concepts of physical and moral wear and tear, as well as depreciation of fixed assets. It is determined that improving the depreciation policy is an important factor in increasing the investment activity of business entities. It is substantiated that internal audit plays an important role in providing reliable information on the process of reproduction of fixed assets, which contributes to the effective management of enterprise resources. The author defines the tasks of internal audit, including verification of the correctness of recognition and assessment of fixed assets restoration costs, reliability of information on depreciation charges, depreciation and residual value of fixed assets, control over accounting of lease transactions and transactions with investment property. The publication also discusses the strategic aspects of fixed assets reproduction, emphasising the importance of an innovative approach to improving the competitiveness of enterprises. It is noted that the implementation of innovative reproduction requires an integrated approach, including the construction of a mechanism that ensures the orientation of the market and the macroeconomic model of management to innovative forms of reproduction of fixed capital. The article pays special attention to the problems of financing innovative projects and cooperative technological chains. The article concludes by emphasising the need to form a comprehensive mechanism at the macro level, focused on the priority reproduction of fixed asset systems using the latest technologies. The paper emphasises the importance of creating a unified system of innovation and investment activities of enterprises, taking into account the interests of all participants. It stresses the expediency of using both market and non-market incentives for the reproduction of fixed assets, which will facilitate the production of competitive products and ensure the sustainable development of enterprises in the market.

Organizational and economic mechanism of financing agricultural production in conditions of market transformation

The article is devoted to the problems of financial support for agricultural sector of economy of Kazakhstan. The goal is to study organizational and economic mechanism of financing agricultural industry in conditions of market transformation in order to develop recommendations for optimizing this system to improve access to financial sources for agricultural enterprises, develop financial instruments, and promote the expansion of market relations. Methods – abstract-logical, graphic, comparative analysis, generalization. Results - available financial resources for agro-industrial complex are analyzed: budgetary funds, investments, loans based on the use of various state financial assistance programs. The relevance of the study lies in the possibility of implementing individual proposals when developing rules for financing, lending, changing the criteria for subsidizing AIC, as well as the effective use of investment funds, loans and other financial resources. The need for additional attraction of internal and external investors has been identified. Conclusions - the state has a regulatory impact on the investment process by ensuring rational pricing, increasing flexibility of lending, tax and depreciation policies, stimulating business activity by providing investors with benefits, and highlighting priority areas of investment. It is necessary to monitor current and future factors of external and internal environment at the state, regional levels and enterprises. There is a need in the near and medium term for effective measures to financially support production and processing of competitive products, increase the variety of produced goods and maintain high quality at all stages of their production. Financial decisions are the basis for effective investment projects.

Tax incentives and firm social insurance contributions: Evidence from China

Tax incentives are closely related to employees' income. The relationship between tax incentives and firm social insurance contributions is underexplored in existing literature. We construct a theoretical model to portray the impact of tax incentives on firm social security contributions and use China's accelerated depreciation policy for fixed assets (AD reform) to test it empirically. We find that the tax incentives effectively increase the social security contributions of firms. This effect is more pronounced in large firms, firms with high capital intensity, firms with strong bargaining power of employees, and firms with social security contributions levied by the social security department. Moreover, the AD reform promotes improvements in firm productivity and performance by increasing investment in machinery and equipment, increasing the rents shared by firms with employees, and thus indirectly boosting firms' social security contributions. Overall, Our findings contribute to a deeper understanding of rent-sharing between firms and employees, as well as enhancing our understanding of the effective incidence of taxes in less developed regions.

APPLICATION OF TAX PLANNING TO THE FIXED ASSET DEPRECIATION METHOD AT PT. PERKEBUNAN III

This research analyzes the impact of implementing tax planning on the fixed asset depreciation methods within PTPN III. The main objective of this study is to identify how the implementation of tax planning strategies affects the choice of fixed asset depreciation methods within PTPN III. The research method employed is a quantitative approach, collecting data through in-depth interviews with relevant stakeholders at PTPN III and analyzing documents related to the depreciation policies and the company's tax planning strategies. The results of this research show that by incorporating the straight-line depreciation method (tax) into its fixed asset depreciation, with a total accumulated depreciation smaller than declining balance (tax), PTPN III has saved on taxes, thus achieving its tax planning objectives.

Accelerated depreciation policy of fixed assets and corporate sustainable development: a perspective of ESG

ABSTRACT As awareness of sustainable development increases, the corporate ESG performance has gradually become a subject of widespread attention. Based on the data of A-share listed companies in China from 2011 to 2018, starting from an exploration of the accelerated depreciation policy for fixed assets (ADP), we employ a Staggered-DID model to assess the impact of tax incentive policies on corporate ESG performance. Our findings reveal that the implementation of ADP can significantly improve corporate ESG performance, with this promotional effect being more pronounced in companies that are non-state-owned, capital-intensive, mature, and at a higher level of marketization. We primarily validate the impact mechanisms from the perspectives of improving corporate financial position and innovation. Our research provides policy insights for utilizing tax tools to enhance corporate ESG and promote sustainable development and contributes richer micro-level evidence for comprehensively assessing the non-economic effects of ADP and ESG-driven factors.

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Tax incentives, common institutional ownership, and corporate ESG performance

AbstractAgainst the backdrop of sustainable development, enterprises, the general public, and regulatory bodies are exhibiting an escalating level of concern regarding the performance in environmental stewardship, social responsibility, and corporate governance collectively referred to as ESG (Environmental, Social Responsibility, and Corporate Governance). This research, from the vantage point of external fiscal policy, investigates the examination of the impact of tax incentives on corporate ESG performance. Drawing upon panel data spanning from 2010 to 2021 at the level of China's A‐share listed companies and grounded in the context of accelerated depreciation policy for fixed assets, this study commitment to both identify and empirically test the presence of a significant positive correlation between tax incentives and corporate ESG performance. Our analysis of the financial mechanism and the Research and Development (R&D) mechanism reveals that tax incentives are instrumental in alleviating the financing constraints faced by corporations, thereby augmenting their financial performance. Furthermore, they serve to intensify R&D efforts, thereby fostering the generation of green innovations. In conclusion, our findings underscore that tax incentive policies significantly enhance the ESG performance of enterprises with common institutional shareholdings, an effect attributed to the presence of governance and synergy effects.

Depreciation Policy of Enterprises in Optimization of Profit Taxation

In conditions of insufficient own funds, the absence of external sources of investment financing, and a significant proportion of unprofitable enterprises, the role and importance of depreciation charges as the most sustainable source of financial resources of the organization increases. The importance of profit increases not only for enterprises, but also for regional budgets, since income tax is one of the important sources of their income. The article examines depreciation policy as an integral part of business financial planning and management. The study showed that in the regions a small number of enterprises use the opportunities provided by Chapter 25 of the Tax Code of the Russian Federation to optimize income taxes through an active depreciation policy, the relevance of which increases due to the obsolescence of the equipment fleet at enterprises and the low level of its renewal. The purpose of the article is to study depreciation policy and the extent to which optimization methods are used in the regions. The study used methods generally accepted in economics: analysis and synthesis, grouping, generalization, dynamics, tabular, etc. The study is based on official data from Rosstat, the Ministry of Finance, etc. The results of the study can be used in developing depreciation policy at the enterprise as part of the accounting policy for the purposes taxation. The study established: depreciation policy has not yet become an effective tool for stimulating investment activity in the activities of business entities.

ОЦЕНКА ЭФФЕКТИВНОСТИ АМОРТИЗАЦИОННОЙ ПОЛИТИКИ ОРГАНИЗАЦИИ

Depreciation policy is an important aspect of an organization's management, but its analysis and evaluation often remain insufficiently researched in the specialized literature. Statistical studies show that depreciation funds in Russia are an insignificant source of financing for the investment activities of organizations. This is a consequence of the predominance of the worn-out part of fixed assets in their structure. The article demonstrates an effective way to analyze depreciation policy, considers the methodology for calculating depreciation on the example of a specific organization. The analysis of the composition and structure of the depreciation resource is given, the directions of its use are identified, and indicators reflecting the degree of financial coverage of depreciation of fixed assets are calculated. Profitability indicators have been calculated to assess the efficiency of using the organization's resources. Measures are proposed that will speed up the process of reproduction of the organization's fixed assets and increase the efficiency of their use.

Посилення ролі амортизаційної політики у формуванні фінансового базису капітальних інвестицій та інвестиційної безпеки держави

In martial law conditions, the problem of making capital investments becomes even more tangible for business entities, given the limitation of their financial capabilities, which, accordingly, affects the investment security of the state. The situation is aggravated due to the lack of sufficient interaction between the state's investment security provision and depreciation policy. The article's purpose is to form conceptual directions for the development of depreciation policy as a tool for financial support of the state's investment security. The study results indicate that the current state of affairs with the allocation of depreciation deductions to finance current assets contradicts the laws of the circulation of individual capital and does not allow the restoration of fixed assets at the required level. This situation is caused by the improper reflection of the content of depreciation in Ukrainian legislation at various levels, which reduces its perception as a means of reducing tax liabilities. The economic content of depreciation as a source of capital investments should not change depending on the way to ensure the targeted use of these funds because depreciation deductions are costs from the point of view of the economic (accounting) concept and a source for investment – from the point of view of the financial concept. However, to ensure all functions (reproductive, financial, regulatory), the state must delegate to business entities the maximum rights to determine depreciation norms and methods. Accelerated depreciation should not be an exception, as it loses meaning in interpreting depreciation in the context of classical approaches to circling individual entrepreneurial capital. The proposed theoretical approaches, subject to the application of appropriate mechanisms, will increase the resource base of capital investments, including the expanded reproduction of fixed assets, ultimately improving the state's investment security.

Влияние методов амортизации активов на эффективность хозяйственной деятельности транспортной корпорации

The relevance of the study is due to the search for modern, most advanced and convenient approaches for transformation and digitalization, for the formation of financial savings sufficient for the renovation of assets. The study of the dependence of depreciation policy, financial stability and the efficiency of economic activities of transport corporations allows us to determine the main directions of asset renovation. The object of the study is the process of forming a depreciation strategy for transport corporations aimed at creating sufficient financial savings. Sufficiency is determined by the real possibility of providing the required volumes of financing for the renovation of public pension facilities. The purpose of the work is to develop a methodological approach for the formation of a depreciation strategy as part of improving the financial management of national transport corporations. The tasks that required their solution to achieve this goal required: consideration of the general theoretical foundations associated with the study of modern developments on the formation and development of a depreciation strategy for replenishing one’s own sources of investment finan­cing; development of an effective depreciation strategy for a transport corporation. Strategies based on the use of combined methods of calculating depreciation, taking into account their impact on the efficiency of business activities; analysis of methods for calculating depreciation based on objective and reliable information, namely, accounting and tax accounting data. The research is based on the methods of induction, deduction and general cognition. Using the example of an operating passenger suburban railway corporation, the results of a study of the influence of the choice of depreciation methods (depreciation bonus) of the active part of production fixed assets on taxation, efficiency and quality indicators of its production, economic and financial activities are presented. The results of the study have proved that when using methods of logical, statistical and correlation analysis, it is possible to use scenario approaches as the main tool for developing a rational depreciation policy for a suburban passenger railway corporation. The conclusions are based on practical recommendations for the formation of an accounting policy of a railway corporation, allowing to accumulate funds and form strategic savings sufficient for the complete restoration of active fixed assets.

ЗОЛОТАЯ СЕРЕДИНА В АМОРТИЗАЦИОННОЙ ПОЛИТИКЕ: ПОИСК ОПТИМАЛЬНОЙ СТРАТЕГИИ

The article is devoted to the problems of developing an effective depreciation policy in the context of the interaction of accounting and tax accounting. The authors analyze the current problems associated with the choice of depreciation methods and offer recommendations on finding a golden mean, accounting for depreciation deductions and optimizing tax liabilities. As a result of the analysis of the features of the depreciation policy, the factors influencing its formation in both types of accounting are determined.

СТАН СИСТЕМИ ОБЛІКУ ТА РОЗКРИТТЯ ІНФОРМАЦІЇ ПРО ОСНОВНІ ЗАСОБИ В ФІНАНСОВІЙ ЗВІТНОСТІ ПІДПРИЄМСТВ СУСПІЛЬНОГО ІНТЕРЕСУ

The accounting system for property, plant, and equipment adopted by an enterprise must effectively capture how the organization derives economic benefits from its assets. Given that accounting for property, plant, and equipment is a critical aspect of a public interest entity’s assets, it is characterized by a considerable degree of variability, and existing recommendations for accounting and disclosure according to international standards are often insufficient. Public interest entities are required by these standards to disclose information regarding key accounting estimates in their financial statements and may also provide any additional information that management believes would help users gain a more comprehensive understanding of property, plant, and equipment. Consequently, to enhance stakeholder trust, it is essential not only to justify and disclose key accounting estimates more thoroughly but also to present data on property, plant, and equipment that reflects management objectives and the organizational, technological, and economic characteristics unique to public interest entities. The aim of this article is to examine the current state of the accounting system and the disclosure of information related to property, plant, and equipment in the financial statements of public interest entities. The article explores selected accounting models for property, plant, and equipment and examines various grouping approaches for these assets. It also analyzes the depreciation policies and compares useful life terms with the tax code of Ukraine. Additionally, the article investigates the determination of the interest rate for future lease payments associated with right-of-use assets in lease agreements. Furthermore, it assesses the state of disclosures in financial statements regarding detailed information such as unfinished capital investments, prepayments for property, plant, and equipment, the cost of fully depreciated property, plant, and equipment still in use, the carrying amount of pledged property, plant, and equipment, profits or losses from the sale of property, plant, and equipment, losses from the write-off of property, plant, and equipment, and any revaluation surplus or deficit related to property, plant, and equipment.

О ВОСПРОИЗВОДСТВЕННОЙ ФУНКЦИИ АМОРТИЗАЦИИ

The article discusses the theoretical and practical aspects of depreciation of fixed assets of an enterprise. The history of the emergence of the practice of calculating depreciation and the emergence of individual approaches to this problem of various economic schools is reflected. The depreciation of fixed assets in the work is considered from the standpoint of economic theory and economic practice. A comparative analysis of the calculation of depreciation of fixed assets is given in accordance with the theory of organizational economics and accounting practice in accordance with the new standard. In the work, depreciation of fixed assets is considered from two positions: as a transfer of part of the cost of fixed assets, equal to the cost of depreciation, to the cost of manufactured products in order to compensate for depreciation itself by investing depreciation charges in the reproduction of fixed assets and as a form of return of capital advanced to fixed assets. It is noted that in practice, no method of calculating depreciation ensures the full return on capital advanced into fixed capital, if investments are taken into account from the perspective of discounting in an inflationary economy. A set of measures is proposed to bring closer the tax and accounting procedures for calculating depreciation, as well as generally to improve the depreciation policy of the enterprise.

Tax incentives and earnings management: A study based on accelerated depreciation policy in China

This paper uses the accelerated depreciation policy for fixed assets implemented by Chinese tax authorities since 2014 to explore the relationship between tax incentives and earnings management. Results report the following: (1) The accelerated depreciation policy for fixed assets causes a significant increase in earnings management and the result persists after accounting for endogeneity problems; and (2) the accelerated depreciation policy for fixed assets has a more significant effect on firms with small pre-policy book-tax differences and low pre-policy investment growth. This paper supplements the research that tax policy affects earnings management behavior of firms.

Tax Incentives, Factor Allocation and Within-Firm Pay Gap: Evidence from a Quasi-Natural Experiment in China

ABSTRACT This paper investigates the effect of China’s accelerated depreciation policy on within-firm pay gap. We exploit a firm-level panel data from China’s A-share listed companies and estimate the policy effects by constructing a difference-in-differences model. Results show that the accelerated depreciation policy significantly increases the within-firm pay gap of firms of pilot industries than those of non-pilot industries, and this finding continues to hold after accounting for other contemporaneous shocks and is robust to a battery of robustness checks. Our mechanism tests demonstrate that, the rank-and-file employees replaced by the use of capital rather than executives, dominates the positive nexus between within-firm pay gap and accelerated depreciation policy. This effect is more pronounced for firms with higher tax burden, stronger financing constraint and higher capital intensity. We also find that China’s accelerated depreciation policy improves overall capital allocation efficiency and labor allocation efficiency. Our findings provide a deep understanding of the link between tax incentives and within-firm pay gap, especially from the perspective of factor allocation.

The effects of capital-biased tax incentives on firm energy intensity: Environmental dividend or consequence?

Capital and energy are essential input factors in the production and operation of firms, and they are closely interconnected. Nudging firms to improve energy performance during capital investment is crucial for attaining green competitiveness. Nonetheless, little is known about how capital-biased tax incentives affect firm energy performance in the process of encouraging firms to update or expand fixed assets. To fill this critical gap, this paper leverages the 2014 and 2015 accelerated depreciation policy for fixed assets as quasi-natural experiments to investigate the impact of capital-biased tax incentives on firm energy intensity. This study uses information from a unique dataset of Chinese firms, and the staggered difference-in-difference strategy is constructed to address identification challenges. The findings of this paper are as follows: (1) The accelerated depreciation policy for fixed assets significantly increases firm energy intensity by approximately 11.2%. A series of validations reinforce the robustness of this result. (2) Restructuring energy use and the factor substitution of energy for labour are the main channels through which the accelerated depreciation policy for fixed assets increases firm energy intensity. (3) The accelerated depreciation policy for fixed assets has a more remarkable effect on the energy intensity enhancement of small-scale firms, capital-intensive firms, and firms in energy-endowed regions. These conclusions support shaping policy options moderately by coordinating tax incentives and government regulation as key factors in promoting sustainable firm development. Overall, this research provides empirical evidence regarding the micro-environmental consequences of capital-biased tax incentives and offers valuable insights for enhancing corporate energy performance.

Tax Incentives and Maturity Mismatch between Investment and Financing: Evidence from China

AbstractThis paper examines the effects of China's accelerated depreciation policy (ADP) on the maturity mismatch between investment and financing. Using panel data for China's A‐share nonfinancial listed companies from 2010 to 2019 and a staggered difference‐in‐differences approach, we found the following. First, ADP significantly aggravated the degree of corporate maturity mismatch, and this result was robust across multiple checks. Second, due to an insufficient long‐term loan supply, firms had to finance the fixed investments induced by ADP with short‐term debts, leading to maturity mismatches. Third, the positive policy effects were mainly significant for firms with high policy exposure, high‐risk preferences, a high degree of information asymmetry, and firms with weak long‐term financing capacity. Finally, maturity mismatch exacerbated corporate financial risks. Our research findings indicate that passive maturity mismatch is prevalent among Chinese companies and emphasize the need to address financial repression in order to mitigate the potential financial risks that may arise from tax incentives.