Tax Incentive Recipient Firm Characteristics and Performance within Malaysian Small and Medium Firms

• Published in: Management and Accounting Review
• Main Author: Ali S.M.; Norhashim M.; Jaffar N.
• Format: Article
• Language: English
• Published: Universiti Teknologi Mara 2022
• Online Access: https://www.scopus.com/inward/record.uri?eid=2-s2.0-85143444206&doi=10.24191%2fMAR.V21i03-05&partnerID=40&md5=f16bd48b72dab4bf6e99cb8aed179eb9

Policymakers can stimulate economic sustainability through tax incentives. However, what qualifies firms as recipients of tax incentives and what motivates them to apply for tax incentives is still up for debate. Investment may not be effectively encouraged by tax incentives. This is because investments might lead to write-downs and cash flow constraints. This study assessed characteristics of firms receiving tax benefits (TR companies). This is the first study to compare them, as TR-status are not always observable. Our analysis demonstrates that the change in prior-year assets and profits is significantly different for TR companies than non-recipients (non-TR companies). In the year that TR companies received tax incentives, their expenditures increased. Nonetheless, since the overall tax burden is computed using the effective tax rate (ETR), and the ETR may also be the result of tax avoidance without tax incentives, the profit performance of TR firms in relation to the utilization of tax incentives was not evident. Additionally, changes in profit performance did not appear to have played a significant influence on the authority's tax incentive decisions. Our findings could assist policymakers evaluate tax incentives as fiscal tools for economic viability. © 2022, Universiti Teknologi Mara. All rights reserved.