Nominal Tax Rates Research Articles

Preventive regulation and corporate tax avoidance: Evidence from China

AbstractThis study examines whether and how preventive regulation impacts corporate tax avoidance in China, using the random inspection of accounting information quality (RIAIQ) by the Ministry of Finance (MOF) as a quasi‐natural experiment. Our staggered difference‐in‐differences estimates indicate that improving preventive regulation through the MOF's RIAIQ can inhibit corporate tax avoidance, especially for firms with tax issues, disclosed specific noncompliance amounts, stronger external supervision, lower marketisation level, and middle nominal tax rates. Mechanism tests demonstrate that preventive regulation diminishes corporate tax avoidance activities by mitigating managerial agency conflicts and intergovernmental agency conflicts in the decision‐making process. Our findings highlight the governance role of preventive regulation in constraining corporate tax avoidance.

CORPORATE TAX RATES IN THE CONTEXT OF MACROECONOMIC DETERMINANTS AS CRUCIAL ASPECTS OF EFFECTIVE CORPORATE TAXATION IN THE VISEGRAD GROUP COUNTRIES

The study examines the relationship between the effective tax rate, the nominal rate, and selected macroeconomic determinants. Correlation and regression analysis were used to analyze the impact of individual determinants and the nominal tax rate on the effective rate in the Visegrad Group countries from 2004 to 2022. The results of the analysis suggest different development directions of the standard tax rate in the Visegrad Group countries. While it decreased in the Czech Republic, the decline in Hungary and Slovakia was followed by an increase. In Poland, the standard tax rate remained almost unchanged. The results of linear regression demonstrated that in Slovakia, the Czech Republic, and Hungary the standard rate has a statistically significant impact on the effective tax rate. The result was not confirmed for Poland, where the standard rate was removed from the model due to the singularity problem.

Personal Income Tax Progressivity in the Czech Republic and its Influence on Tax Revenue

The article evaluates the influence of the tax progressivity of the personal income tax on tax revenue in the Czech Republic. The first part of the study deals with the analysis of tax progressivity. In the next part, the indicator of tax progressivity is used as a variable of the regression model examining its effect on tax revenue. The analysis is carried out for the period 1993-2020. For part of the period, the nominal tax rate was progressive, for part of the period, on the contrary, it was linear. This approach to solving the research topic is thus unique and creates added value to the text. This is due to the length of the examined period, the alternative approach to measuring tax progressivity, and the way the tax base from dependent activity was constructed in the Czech Republic for part of the period.

Economic Determinants Concerning Corporate Tax Revenue

This study quantifies the impact of selected economic determinants on corporate tax revenues. The methodology applies a panel regression method with the 27 EU Member States considered for 2004–2020. This paper used a panel regression model with fixed effects, and the Arellano adjustment was used to achieve robust standard deviations. Source data were obtained from the European Commission, Eurostat, World Bank and Transparency International databases. Based on this hypothesis, we wanted to prove that the nominal tax rate, which is legislatively determined based on political consensus, is a decisive determinant of the amount of tax revenue. However, the analysis results reject this hypothesis, although the model showed it as positive but statistically insignificant. On the other hand, an interesting research result is that the analysis confirmed the effective tax rate as a significant determinant of tax revenues. From this, we can conclude that policies should be aimed at an effective tax rate or a better harmonisation of the nominal tax rate towards the effective rate.

Does the Type of Nominal Personal Income Tax Rate Affect Its Progressivity? A Case Study from the Czech Republic

Abstract Background The article evaluates the influence of the type of nominal personal income tax rate on its progressivity. This is examined in the Czech Republic in the period 1993–2020. Between 1993 and 2007, the nominal tax rate was progressive, while from 2008 until the end of 2020, the nominal rate was linear. Objectives The paper aims to analyse if the type of nominal tax rate affects personal income tax progressivity. Methods/Approach The article uses analysis, synthesis, comparison and regression analysis methods. The progressiveness of the tax obligation indicator is used to evaluate the degree of tax progressivity. Results In the context of the analysis of the degree of tax progressivity, personal income tax is more progressive in the period of validity of the nominal linear rate for taxpayers with incomes below the average wage level. Conclusions Since the linear rate has been in force, the government in the Czech Republic has often mistakenly presented that tax rate innovations will ensure that everyone pays the same tax.

Reducing complexity and compliance costs: a simplification safe harbour for the global minimum tax

AbstractI present a simplification safe harbour based on tax administrative guidance for Pillar Two, the global minimum tax, developed together with Cedric Döllefeld, Joachim Englisch, Simon Harst and Felix Siegel. It aims at reducing unnecessary compliance costs by avoiding effective tax rate (ETR) calculations if a minimum tax of 15 per cent has already been paid. The simplification safe harbour consists of a two‐level test to determine if a full GloBE ETR calculation is required from a multinational enterprise (MNE) or if a simplified ETR calculation or no calculation at all is sufficient. The test consists of a country‐level test and – only if necessary – an MNE‐level test. The country‐level test assesses a country's tax system. It seeks to determine whether the national tax system's nominal tax rates are (too) low and whether significant deviations between a country's tax base and the GloBE income exist. The second level, the MNE‐level test, is only carried out if the country‐level test has identified potential ‘red flags’. Even if this second test is required, the simplification safe harbour offers a significant reduction in compliance costs. This reduction is achieved by relying on national tax data, which are readily available in firms, instead of highly adjusted accounting data.

Czech Corporate Effective Tax Rate as Investors Costs Changes with Times

Abstract When choosing the appropriate jurisdiction, trading companies need to consider many variables. This can include administrative burdens, the speed of establishment of a company, the granting of some degree of anonymity of ownership, and a friendly tax environment. This article is focused on finding the corporate effective tax rate in the Czech Republic in the period 2005–2017 with the database of the Czech tax administrator. In the light of the international tax law, the information concerning effective tax rates becoming necessary. The results of this study show that the nominal tax rate may not be decisive for the determination of the tax burden, as most countries allow the application of tax allowances and deductions and thus achieve virtually lower taxes.

GloBE: Why a Nominal Tax Rate of More Than 15% Might Not Be Enough

This article explains why the effective tax rate for the purposes of the Global Anti-Base Erosion (GloBE) rules may deviate from the nominal corporate income tax rate and fall below 15%, even in high-tax jurisdictions. It further addresses the (non-)application of the substance-based income exclusion in loss situations.

Tax incentive and firm investment: Evidence from the Income Tax Revenue Sharing Reform in China

AbstractHow to stimulate enterprise investment is a dilemma facing most countries, and tax incentives are frequently used as a solution. This study explores how China's Income Tax Revenue Sharing Reform affected enterprises' fixed asset investment (FAI). This reform did not modify the nominal tax rate or depreciation allowance directly but changed the effective enterprise income tax (EIT) rate via switching tax administration indirectly. And the change in the effective EIT rate should affect firm investment. This paper uses a regression discontinuity (RD) design to conduct a quasi‐natural experiment of the reform in 2002 based on an enterprise‐level dataset from the Annual Survey of Industrial Enterprises (ASIE). After the reform, the effective EIT rate (ETR) of enterprises collected by the State Administration of Taxation (SAT) was 11% lower than that collected by the Local Administration of Taxation (LAT). FAI improves by 0.7% for every 1% decrease in ETR. Tax avoidance is a key channel for the ETR to affect FAI. The FAI of smaller companies, non‐state‐owned enterprises (SOEs) and companies with high size‐age (SA) indexes has responded more significantly to the change in ETR brought about by reform.

Tax incentive and corporate financial performance: Evidence from income tax revenue sharing reform in China

How to stimulate corporate performance is a crucial issue of general concern in all countries. This paper examines how China’s Income Tax Revenue Sharing Reform in 2002 affects corporate financial performance. Unlike general tax policies that directly adjust the nominal tax rate or depreciation allowance, this reform indirectly affects the effective Enterprise Income Tax (EIT) rate by switching tax administration, thereby affecting corporate financial performance. We use a firm-level data-set from Annual Survey of Industrial Firms (ASIF), and test the impact by using a quasi-natural experimental design through regression discontinuity design (RDD). We find that after the reform, the effective EIT rate (ETR) of enterprises collected EIT by State Administration of Taxation (SAT) was 10% lower than that of enterprises collected EIT by the Local Administration of Taxation (LAT). If the ETR reduces by 1%, corporate financial performance, more specific, Return on Asset (ROA), increases by 1.7%. There are two available channels: increasing fixed asset investment (FAI), and alleviating external financial constraints. Additionally, the impact can be weakened for locally SOEs, large firms, firms with low SA index and those in less competitive industries.

The impact of political connections on corporate tax burden: Evidence from the Chinese market

This paper investigates how political connections affect corporate tax burden. We construct two multi-tiered political connections series and employ the Propensity Score Matching approach. We find that stronger political connections lead to a lower corporate tax burden in Chinese listed firms. Specifically, the nominal (effective) tax rate decreases by an average of 1.03% (0.33%) as the hierarchical position of Chairman or CEO in the government rises by one rank (e.g., from a sub-provincial to provincial minister), and by an average of 0.99% (0.98%) as the administrative level of the government where the Chairman or CEO holds the position rises by one level (e.g., from a provincial to a central government). Our further analysis shows that political connections reduce the tax burden for both SOEs and non-SOEs, especially for the latter.

Payroll tax shields and wage stickiness:evidence from China’s 2008 corporate income tax law

ABSTRACT Labor-cost adjustment has become an increasingly significant factor in enterprise development and economic growth, yet labor costs have proved ‘sticky’: more likely to rise with increasing revenue than fall when revenues decline. Although tax policies play an important role in wage determination, there is little research on how they affect wage stickiness. We treat China’s tax-reforming 2008 Corporate Income Tax Law as a shock and find that increases in nominal tax rates enhance wage stickiness in relation to ordinary employees but not executive compensation. The effect is most pronounced in enterprises with higher long-term debt ratios, state-owned enterprises, and labor-intensive industries.

Quo Vadis Tax and Levy Burden of Wages in the Czech Republic? Tax Reform in 2022

The article deals with changes in personal income taxation in the Czech Republic in 2022 and their impact on the tax burden. The article also deals with the levy burden represented by payments for social security contributions. An extensive tax reform changing the method of taxation of income from dependent activities took place in the Czech Republic in 2021. Its continuing effects was added with impact of legislation changes after 1 January 2022. The most significant change is the increase in the taxpayer’s relief by CZK 3,000. The assessment of how these changes affect the tax burden was made by calculating the effective tax rates. The research methodology includes methods of regression and correlation analysis and methods for time-series analysing. The average wages used by the Czech Social Security Administration for the purposes of calculating social security contributions were used for the analysis. The results show that the tax burden has decreased since 2022 if basic taxpayer relief is applied. For the taxpayer, who, in addition to the taxpayer’s relief, also claims a tax credit for children, the tax burden increases slightly. Although in most cases, the income is subject to the nominal linear tax rate, in comparison with the previous year, there is an increase in the progressivity of the personal income tax due to the rise of the tax relief per taxpayer. On the other hand, social security contributions are both nominally and real linear. There are no significant reforms in this area in comparison with the tax burden. Due to the decrease in the tax burden, in some cases, the levy burden of social security contributions is higher, even though their nominal rate is lower than the nominal income tax rate.

Spatial diversification of property tax policy – Searching for yardstick competition in Polish metropolitan areas

This article contributes to the ongoing debate on local tax policy-making, in particular regarding yardstick competition in the area-based property taxation system. Based on data from 300 municipalities located in ten metropolitan areas in Poland over ten years, we identify whether we are faced with tax mimicking induced by political considerations in tax rates setting. In particular, we seek to identify whether the spatial interdependence of property tax rates set by local governments of Polish municipalities is driven by a yardstick competition mechanism.The analytical approach is based on the estimation of the spatial residential property tax reaction function by using spatial autoregressive panel models. In order to verify the presence of yardstick competition, we include a set of purely political variables in the models and test their impact on tax rate decisions.The results confirm the evidence of yardstick competition, which, however, is present only in a few of the examined metropolitan areas. We found nominal tax rates for residential buildings that were significantly lower in election years, and empirical evidence of several political factors influencing local tax policies in Poland.

A Choice Experiment on Taxes: Are Income and Consumption Taxes Equivalent?

We test the equivalence of income and consumption taxes through a choice experiment. Under a given set of income and consumption parameters, subjects were asked to choose among an income tax of 20%, a consumption tax of 25% (which is an equivalent tax burden), a consumption tax of 22%, and a consumption tax of 20%. Our results showed that subjects prefer income tax to consumption tax when the nominal consumption tax rate is higher than the nominal income tax rate. However, subjects tend to prefer consumption tax to income tax when the nominal tax rates are identical. Our result, that subjects prefer income tax to consumption tax despite a higher tax burden, implies the consumption tax miscalculation bias. The consumption tax miscalculation bias is one where subjects miscalculate the amount of consumption tax as if it is declared by tax inclusive, as in the case of income tax, despite consumption tax being tax exclusive. If the income tax burden is equivalent to the consumption tax burden, subjects prefer income tax. This result implies that income and consumption taxes are not equivalent due to the consumption tax miscalculation bias.

Determinants of corporate R&D expenditures: the role of taxes

AbstractThe paper aims to find the relationship between corporate expenditures on R&D and tax burdens comparing German with French R&D incentives. We use the OLS method for the financial and patent cross-sectional data retrieved from the Amadeus database. The results confirm that firms with higher tax spread (the difference between the nominal and effective tax rates) spend less on R&D. These are in line with findings of a positive relationship between corporate R&D investment and tax burdens. Thus, firms that invest in R&D more pay higher taxes. However, they are less profitable as the return on R&D investment is visible only in the long run. German corporate expenditures on R&D are significantly sensitive to internal funds (proxied by cash flow) and depend on debt, contrary to French. The results indicate that the French firm's age (a phase of life cycle) has a significant impact on spending on R&D compared to German. Whereas in both countries, corporate expenditures on R&D are sensitive to the number of obtained patents. The capability of reducing the level of tax burdens below the nominal tax rate in the case of older German firms stimulates them to increase their R&D expenditures. However, German firms can decrease tax due to the use of R&D grants (revenues without taxation) in the absence of other tax incentives related to R&D.

Analytic Hierarchy Process in Czech Taxpayers’ Decision-Making Regarding their Tax Liability

The article deals with taxation of the earned income of natural persons in the Czech Republic in 1993–2017. The goal is to select the year when the tax burden on the earned income of natural persons was the lowest depending on the taxpayers’ preferences, their income level and the number of tax deductions they were entitled to. Based on their income levels, taxpayers analyzed the elements constituting their tax liability and decided whether it became smaller or larger in the given periods. The research methodology includes methods of description, comparison, analysis and synthesis and methods of multi-criteria decision-making. The decision-making analysis focuses on model situations which differ from each other in terms of the amount of gross wage and the number of deductions applied. It is concluded that in most cases, the replacement of the progressive tax rate by the linear rate in 2008 lead to a reduction in the tax burden. The highest decrease of tax liability was observed among taxpayers with below-average incomes. Taxpayers with above-average incomes were subject to a higher tax liability when the nominal tax rate was progressive. Tax credit is yet another factor that influences tax liability; for taxpayers whose income is less than average it takes a form of tax bonus. The most significant change in the legislation regulating income taxation occurred between 2007 and 2008. According to the evaluated criteria weights, the most import criterion for Czech taxpayers is the effective tax rate. The weights of criteria in multi-criteria decision-making analysis were established by using the results of the questionnaire survey conducted by the author among 189 respondents at a manufacturing company in Zlin region. For citation Krajňak M. Analytic Hierarchy Process in Czech Taxpayers’ Decision-Making Regarding their Tax Liability. Journal of Tax Reform. 2020;6(2):142–156. DOI: 10.15826/jtr.2020.6.2.079. Article info Received May 8, 2020; Revised May 22, 2020; Accepted June 2, 2020

Investor Decision-making in the Context of the Effective Corporate Taxation

Mobility of capital and the efficiency of corporate taxation are important terms for investors who are deciding on the allocation of investment. At present, capital mobility is a modern phenomenon that cuts budgets for tax revenues and affects overall employment and economic growth. The corporate taxation principle means the profit is immediately taxed at the shareholders’ level and the tax rate of the shareholders is used as a tax rate for investment profits. The aim of the article is quantifying the degree of dependence between the effective rate and the selected microeconomic determinants, which influence the investment decisions of foreign investors. To achieve the aim, we have selected and analyzed the microeconomic determinants that monitored 4the economic indicators in the companies. In the article, we focused on the leverage effect, the capital intensity, the company’s profitability, the share of development and research spending that companies are willing to provide, and the nominal tax rate, which is the most generalized and primary information for investors. Data for the empirical research are from the financial statements of companies listed on stock exchanges, which lead the business activities in the Member States of the European Union. The data comes from the Amadeus database (2018). Through linear regression analysis, we research the impact of microeconomic determinants and effective tax rates over the period 2008 to 2016. The analysis has confirmed the established hypothesis. The results of the analysis pointed to the profitability of the company as the indicator that most influence the effective tax rate. Increasing it by 1% will bring down the effective tax rate by 2.451%. The results were confronted with the theoretical theories of many authors who evaluated this relationship.

Effects of changes to the taxation of beer on alcohol consumption and government revenue in Australia

BackgroundIn 1988, the Australian government introduced a single nominal rate of tax on all beer products calculated on alcohol content. However, in 2000/01, varying nominal rates of tax were introduced for beer products according to three alcohol content levels (low-/mid-/high-strength) and container type (on-/off-premises). Little is known about the effect of the different tax policies on alcohol consumption and government revenue. MethodsWe undertake time series analysis over 1989–2016 to examine the effect of beer tax policies in two sub-periods (before/after 2000/01) on category-level beer consumption per capita and government revenue. We also test if the policy changes in 2000/01 had immediate or long-term effects on total (all beer category) consumption over 1989–2016. Data includes monthly domestic beer sales volumes by category (in litres of alcohol), monthly government revenue from beer tax (AUD$), and inflation-adjusted tax rates (AUD$ per litre of alcohol). ResultsBefore 2000/01, the single nominal tax rate had a significant positive effect on revenue, but no significant effect on consumption. After 2000/01, the relatively higher nominal tax rates for two beer categories (mid- and high-strength off-premises) had a significant negative effect on their consumption, and a significant negative effect on revenue in one category (mid-strength off-premises). However, across the full period examined (1989–2016), the level and slope of total beer consumption was not significantly affected by the tax policy changes in 2000/01. ConclusionRaising alcohol taxes has the potential to reduce consumption and increase government revenue, but has been underutilised for these public health and public finance objectives in Australia.

The relationship between the effective tax rate and the nominal rate

<p class="Pa7">The main goal of this investigation is to understand the relationship between the nominal rate and the effective tax rate and to evaluate if the differences between them depend on the value of the nominal rate. Based on a sample of 1,530 companies from 5 countries members of the European Union (Denmark, Slovenia, Finland, Luxembourg and the United Kingdom) there’s evidence that the effective tax rate is positively related to the nominal rate. The effective tax rate was calculated through the ratio between the value of the tax paid over the result before tax. When the nominal tax rate increases, the effective rate increases equally but with a slower growth. This relationship is softened if we take into account the value of the nominal tax rate, which shows that companies have the ability to manage the results in order to increase savings in tax.</p>