VŠB – TECHNICAL UNIVERSITY OF OSTRAVA FACULTY OF ECONOMICS
Application of Corporate Income Tax including Evaluation of Tax Burden on Chinese Electric Manufacturing Industry
Student: Wang Xiaohan
Supervisor of thesis: Ing. Krzikallová Kateřina, Ph.D.
Ostrava 2021
I hereby declare that I have elaborated the entire thesis including annexes myself. I have supplemented the provided annex No. 1. myself.
Ostrava dated：05.05.2020
Xiaohan Wang
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Contents
1. Introduction ... 5
2. Theory of Taxation ... 6
2.1 Taxation Theory, System and Tax Rates ... 6
2.1.1 Classical Approach of Taxation Theory ... 6
2.1.2 Keynesian Taxation Theory ... 6
2.1.3 Neo-classical Taxation Theory ... 7
2.1.4 Neo-Keynesian Taxation Theory ... 8
2.2 Tax system ... 9
2.2.1 Tax Rates ... 9
2.2.2 Principle of taxation ... 11
2.2.3 Functions of Taxation ... 13
2.3 Tax Burden ... 15
2.3.1 Classification of the tax burden ... 15
2.3.2 Tax Burden on Corporate Income ... 17
2.3.3 Measurement of Real Tax Burden on Corporate Income ... 18
2.4 Methodology in this Thesis ... 20
3. Principles of Corporate Income Tax in China ... 25
3.1 Corporate Income Tax and in China ... 25
3.2 Introduction of Chinese taxation environment ... 27
3.2.1 Regulation and Supervision system of Chinese taxation ... 27
3.2.2 Chinese taxation environment ... 28
3.3 Develop in Corporate Income Tax System of China ... 31
3.3.1 From 1978 to 1993 ... 31
3.3.2 1994~2013 ... 33
3.3.3 After 2013 ... 34
4. Evaluation of corporate income tax burden on business entities ... 35
4.1 Sample selection, design of influence factors, and research hypothesis ... 37
4.1.1 Sample selection ... 37
4.1.2 Design of influence factors ... 38
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4.1.3 Research hypothesis ... 39
4.1.4 Regression model ... 40
4.2 Descriptive statistical analysis ... 41
4.2.1 Descriptive statistics of the dependent variable... 41
4.2.2 Descriptive statistical of the independent variable ... 42
4.3 Regression analysis ... 47
4.4 Robustness test ... 51
4.4.1 Descriptive statistics of replaced variables ... 52
4.4.2 Regression analysis ... 54
4.5 Result analysis ... 57
5. Conclusion ... 59
Bibliography ... 61
Professional book ... 61
An article in a journal (periodical) or in proceedings ... 61
Electronic documents and others ... 62
List of Abbreviations ... 65
Declaration of Utilisation of Results from the Diploma Thesis ... 66
List of Annexes ... 67
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1. Introduction
Tax is the main source of fiscal revenue of a country. It refers to the currency or articles collected by the government from corporations, households, and individuals.
The term "tax burden" applies to the financial burden that taxpayers must bear to meet their tax obligations. The burden of taxation is at the heart of national tax policy.
The level of tax burden directly affects the distributable profits of the corporation, and it also affects the amount of the government's executable budget. The impact of the tax burden level on both sides needs to reach an appropriate level that is acceptable to both parties to benefit the development of the country and social economy.
In the era of globalization, the level of the tax burden will be a manifestation of another country's competitiveness, and it is also an important prerequisite factor that capital aggregation must take into consideration.
The aim of this thesis is to the evaluation of corporate income tax burden on business entities based on the WIND, CSMAR database and the Shanghai Stock Exchange's and the Shenzhen Stock Exchange's annual reports, and to obtained direct and indirect tax data of a certain number of listed companies in the electrical manufacturing industry in the recent years.
In this chapter, I will introduce the whole structure of my thesis and briefly describe it. In the second chapter, I will introduce the theory of taxation, corporate income tax, and methodology on evaluation of tax burden on business entities. In the third chapter, I will explain the principles of corporate income tax in China, the Chinese taxation environment, and Chinese corporate income tax. In the fourth chapter, we will evaluate of Chinese real corporate income tax burden on the Chinese electronic manufacturing industry. In the fifth chapter, I will conclude the whole thesis.
In the whole thesis, there were used methods of analysis, comparison, description, descriptive statistical, and multivariable linear regression analysis to analyze the application of corporate income tax burden on the Chinese electric manufacturing industry.
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2. Theory of Taxation
We will divide this chapter into 4 parts, first is to explain the theory of taxation, then is about the corporate income tax, in the third part, we will explain the corporate income tax burden and describe the method we will use in this thesis, in the final part, we will describe the methodology we use to analyze the real corporate income tax burden.
2.1 Taxation Theory, System and Tax Rates
There are 4 approaches to taxation theory from the birth of economics.
2.1.1 Classical Approach of Taxation Theory
First is the classical approach of taxation theory. For a long time, the classical taxation theory has been the most influential in the history of economics. As a result, taxation has been relegated to the task of raising revenue for the state government. The classical approach has been given birth by Adam Smith, who gave the definition of the taxation system and the principle of taxation, which still valid until 200 years until its formulated, can be described as equity, determination, convenience, and thrift of taxation administration Trotman-Dickenson (1996, P123).
2.1.2 Keynesian Taxation Theory
Taxation theory and policy proposals centered on the economic thoughts of British economist J.M. Keynes. To achieve full employment and economic growth, Keynes urged the government to interfere in the economy, generate successful demand, and improve macro-demand management.
John Keynes (1937), the founder of the Keynesian taxation theory, revealed the basic concepts of taxation. He called for government interference in the market’s economy regulation. J.M. Keynes called for the nation to pursue an expansionary
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economic policy to boost demand and boost economic development. Such are, to increase government spending, run fiscal deficits, boost the economy, and keep the economy afloat. He argues that the main cause of the economic recession is a decrease in overall demand for goods. He went on to say that maintaining the balance of total economic data information will help balance supply and demand at the macroeconomic scale.
When there are full jobs, one of Keynes' main convictions is that economic development is only related to monetary savings. Large sums of money saved, on the other hand, stifle economic growth because they are a non-productive source of wealth.
As a result, the paper concluded that surplus savings should be taxed. As a result, the government must step in and deduct income savings by taxation in order to finance assets and cover government expenditures. According to Keynesian theory, a high level of progressive taxation is needed, and low tax rates result in lower state revenues, which contributes to economic instability. Taxes, in particular, must play a central role in the state's regulatory structure, according to Keynes. High tax rates boost economic growth, control economic stability, and function as a counterbalance to the market structure just like “integrated flexibility mechanisms.”
2.1.3 Neo-classical Taxation Theory
The neo-classical taxation theory was main developed by American economist Arthur Laffer, who invented the so-called "Laffer curve" by establishing a direct proportionality between progressive taxation and budget revenues.
According to Laffer (2004), increasing the tax burden increases government revenue only until a point where they begin to decline. The greater the incentive for tax avoidance, the greater the financial rate. When the tax rate is set at 100 percent, all production in the currency economy ceases. If the government collects all the profits getting by people's labor, people may refuse to function in the currency economy. As a result of the output interruption, the tax cannot be collected in its entirety. The income of the government will be zero.” And tax rate varies from 0 to 100 percent, and the
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gross tax revenue fluctuates between zero and zero. The "Laffer curve" must reach a point where at a given tax rate, the government's tax revenue increases in lockstep with the rise of tax rates. With more rises in the tax rate above this turning point, government tax revenue will decline.
2.1.4 Neo-Keynesian Taxation Theory
For neo-Keynesian theory. Irving Fisher (1939) considered taxing savings only as a percentage of the deposit. As a result, the concept of a consumption tax was born. It can be used to promote investment or savings. Long-term savings, according to his theory, are a factor in potential economic development.
Nicolas Caldor（1963）considered that for the agricultural sector, commodity tax will surely become one of the main methods.
When certain imports are controlled by a single company, domestic consumer prices may tend to be fixed at the best "monopoly" price, and import taxes are a method of taxing corporate profits. Similarly, in the export of mineral or planted products, export tax is a method of taxing product profits.
Nicolas Caldor also points out that a retail tax based on progressive rates of exemptions and tax credits for different categories of products is more equitable for low-income citizens than a fixed sales tax.
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2.2 Tax system
The tax system is the key content of the state's fiscal structure, which refers to the number of different taxation methods determined by the government in the form of legislation or decrees, and which represents the economic relationship between the state and taxpayers. It's a catch-all word for the state's numerous tax laws and regulations, as well as collection control techniques. The main aim of a tax system is to make a suitable system of revenues to redistribute this source and to minimize tax burden and administration cost.
A tax system of a developed economy consists of three types of taxes which are:
Taxes on income (direct taxation), taxes on consumption (indirect taxation), and taxes on capital according to Trotman-Dickenson (1996, P125).
First, we will introduce direct taxation and indirect taxation.
Taxes imposed directly on persons or companies, such as wages, labor remuneration, and dividends, are known as direct taxes. Personal income tax, real estate tax, corporate income tax, inheritance tax, and other forms of direct tax are all examples of direct tax.
Indirect taxation means that the taxpayer is not the real taxpayer and that the taxpayer can shift the tax burden to others by increasing rates or fees. Taxes on goods and services are known as indirect taxes. The indirect tax is normally added to or combined with the price of products or service charges by commodity manufacturers and operators, thus changing the tax burden.
Indirect tax contains value-added tax, consumption tax, and tariffs are all indirect taxes.
2.2.1 Tax Rates
Taxes may be levied at different rates based on how equity is determined and what the object of taxation is, which include:
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A tax system with a uniform flat tax rate is known as a uniform flat tax rate, that only one tax is implemented in a state. The unitary income tax system imposes a one- time tax on various incomes at a single tax rate, all net income (which can be divided by capital income, labor income, and other income minus all deductions) is taxed at a uniform tax rate. The downside is that everyone is taxed at the same rate, regardless of their ability to pay taxes or their source of income, which makes it difficult to achieve the principle of exterminating inequality of income distribution caused by market mechanisms.
2.2.1.2 Proportional tax rate
The proportional tax rate is a tax rate that varies in proportion to the tax base and the tax amount and is independent of the tax base level. The common feature of the proportional tax rate is that the tax amount and the tax base always maintain the same ratio, and the tax amount increases or decreases with the increase or decrease of the tax base at a year-on-year rate.
From a finance perspective, the proportional tax rate makes tax revenue change with economic changes and has a certain degree of flexibility.
From an economic side, the proportional tax rate can make the tax burden change with changes in income (that income more pay, income less pay less).
But in terms of social policy, because the affordability of people with more income is not the same as that of people with less income, although taxation is based on the same rate, it will have the disadvantage of apparent equality and inequality.
2.2.1.3 Regressive tax rate
A regressive tax rate is one in which the taxpayer's tax burden decreases as the number of taxable items grows. The lower the tax burden rate is, The larger the taxable
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value of a regressive tax, the lower the taxable amount, the higher the tax burden rate, the lower the taxable amount.
2.2.1.4 Progressive tax rate
A progressive tax is one in which the tax rate rises as the number of taxable items rises. That is, various tax rates are stipulated depending on the size of the taxable objects.
The tax rate is proportional to the size of the taxable amount, the less the taxable amount, the lower the tax rate. The progressive tax burden is equal to the tax burden incurred by the taxpayer, which has the advantage of fairness.
2.2.2 Principle of taxation
Modern taxation principles are developed because of the taxation principles of Adam Smith and others.
The first taxation principle is “the subjects of every state ought to contribute to the support of the government, as nearly as possible in proportion to their respective abilities”. The second principle is “The tax which each individual is bound to pay ought to be certain and not arbitrary. The time of payment, the manner of payment, the quantity to be paid, ought to be clear and plain to the contributor, and to every other person” (Trotman-Dickenson (1996, P123-124)).
The third is “Every tax ought to be levied at the time or in the manner, in which it is most convenient for the contributor to pay it”. And the last one “every tax ought to be so contrived as both to take out and to keep out of the pockets of the people as little as possible over and above what it brings into the public treasury of the state.”
(Trotman-Dickenson (1996, P123-124)).
In recent years, fresh tax concepts have been applied to Adam Smith's initial ones.
To begin with, taxes should be versatile enough to adapt to changing conditions and reduce fluctuations in economic activity.
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Second, taxes should be designed to minimize the disincentive effects on employment and business, which do not have a positive impact on the development of the economy.
The third principle is that taxes ought to be globally compliant in order to prevent people from double taxation who work in multinational corporations and others who work abroad.
“And taxes should be adaptable so that they can be used, if so desired, to achieve greater vertical equality by redistribution of income and wealth.” (Trotman-Dickenson (1996, P124)).
After all these principles above, here is another point of view of tax principles.
The first is the concept of tax fairness, which states that the state's taxation, such as the development of the tax system as well as the implementation of taxation policies, should be fair and consistent.
Then there is the concept of tax efficiency, which states that the government's tax collection efforts, as well as the development of a tax system and the implementation of tax policies, should prioritize efficiency and adhere to the principle of efficiency.
Taxation should also be efficient. The efficiency of taxation here usually has two meanings: The first is administrative efficiency, which allows the taxation collection and payment mechanism to consume the least number of resources; the second is economic efficiency, which enables taxation to be beneficial to economic efficiency or even have the least negative effect on economic efficiency.
Appropriate taxation is the fourth principle of taxation. which is concerned with the government's tax collection, including the development of a tax system and the implementation of tax policies, should take into account current and future needs.
"Requires" refers to financial requirements, while "possibility" relates to the possibility of a tax burden, such as economic viability. The tax burden must be moderate, according to the philosophy of moderation. Tax revenue can be used to meet not only the needs of usual fiscal spending but also to preserve coordination and synchronization with economic growth, resulting in the lowest possible macro tax burden.
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Based on the content of the above taxation principles, combined with the development of taxation theory and practice, According to the Chinese State Administration of Taxation (2012). China summarizes the taxation principles of the new era into the four principles of "fairness, efficiency, moderation, and rule of law"
from the four aspects of society, economy, finance, and management.
The concept of the rule of law in taxation states that the government's tax collection, such as the creation of a tax system and the implementation of tax policies, should be centered on the law and taxes should be governed by the law. The procedural norm principle of taxation and the principle of simple collection content are two elements of the rule of law principle's content. The former necessitates statutory tax procedures, such as tax legislative procedures, law enforcement procedures, and judicial procedures, whereas the latter necessitates statutory tax material.
2.2.3 Functions of Taxation
The basic function of taxation is allocation. Which is the main source of national fiscal revenue. Tax is used to organize fiscal revenue and ensure that the financial resources needed by the government to provide public goods are provided promptly.
The other three principles of taxation can only be realized in the process of fiscal organization of revenue.
The second function is redistribution, which means it can adjust the inequality of income distribution caused by market mechanisms.
The third function is stabilization, taxation can stabilize the economy by its impact on social consumption expenditure.
The function of stability include: first, taxation can actively increase and decrease by itself, to consciously intervene and adjust macroeconomic instability following the fluctuations of the business cycle; second, under the established system, taxation can be automatically following the changes in the economic cycle, and reversely undergo greater changes, automatically adjust the operating state of the macroeconomic, and play an automatic stabilizing role.
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The tax also has a fiscal function; the fiscal function can form the national financial resources that are necessary to perform the tax function.
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2.3 Tax Burden
The term "tax burden" applies to the financial burden that taxpayers must bear to meet their tax obligations. The burden of taxation is at the heart of national tax policy.
The level of tax burden directly affects the distributable profits of the corporation, and it also affects the amount of the government's executable budget.
The tax burden can generally be measured in two ways, one is an absolute indicator, and the other is a relative indicator.
Among them, the absolute index refers to the taxpayer's tax amount, and the relative index refers to the ratio of the taxpayer's tax payable to the tax base. By comparing the two indicators, it can be found that the absolute number measurement indicator is difficult to reflect the tax burden level of the taxpayer scientifically and intuitively. So, we generally use the relative number indicator to measure the tax burden level of the taxpayer.
2.3.1 Classification of the tax burden
The specific tax classification standards are mainly as follows:
According to the level of tax burden and the scope of application, it can be roughly classified into two types: macro tax burden and micro tax burden. The so-called macro tax burden refers to the ratio of all taxes paid by all taxpayers to the country to GDP in a broad sense. It represents the relationship between the total tax revenue of the entire country and the total economic output, which can be used to measure the overall country.
Micro-tax burden mainly refers to the tax burden of a specific tax object, which represents the level of the tax burden of a certain individual taxpayer and can provide an important reference and basis for the formulation of tax burden policies of individual taxpayers.
According to the measurement method of the tax burden, it can be divided into absolute tax burden and relative tax burden. Absolute tax burden generally refers to the actual amount of business tax that the taxpayer of an enterprise needs to pay to operate
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the business within a certain period, that is the total actual tax burden of the enterprise taxpayer. Relative tax burden mainly refers to the needs of corporate taxpayers to operate a business within a certain period. The statutory tax to be paid accounts for a certain ratio of actual business income, that is the real tax burden rate of the taxpayer.
According to the actual degree of tax burden classification, the tax burden can be divided into two types, nominal tax burden, and real tax burden.
Among them, the nominal tax burden is referring to the statutory tax that the taxpayer should theoretically bear in a certain period, in compliance with the national taxation law's provisions. In general, it refers to the statutory tax calculated at the legal tax rate. The real tax burden refers to the amount of tax paid by the taxpayer following national regulations within a certain period, which is the actual tax amount calculated by the taxpayer's actual tax burden rate.
In actual situations, due to national tax preferential policies and other reasons, the two are often not completely equal.
According to the total tax burden and tax increment, it can be classified into average tax burden and marginal tax burden. The average tax burden is generally considered to be the absolute ratio of the complete tax paid by the taxpayer in compliance with national laws in a certain period to the total income of the taxpayer in the current period. Marginal tax burden refers to the ratio of the increase in tax paid to the state by a taxpayer in a certain time and the increase in income in the current period.
According to the classification of whether the tax burden can be transferred, which can be split up into direct tax burden and indirect tax burden. Direct tax burden means that the taxpayer can only bear it by himself and cannot be passed on to the third party to bear the proportion of the tax payable to the tax source, that is, the taxpayer's direct tax burden rate. Indirect tax burden refers to the ratio of the partial or complete tax payable to the tax source that a taxpayer can pass on to others, that is, the taxpayer's indirect tax burden rate.
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2.3.2 Tax Burden on Corporate Income
The tax burden on corporate income can be classified into nominal tax burden and actual tax burden according to its true degree. The specific explanation is as follows:
(1) Nominal tax burden on corporate income
The nominal corporate income tax burden refers to the tax burden of a taxable corporation nominally at a 25 percent statutory tax rate in China. The statutory tax rate is a tax rate formulated with full consideration of the interests of both the state and the corporation. It guarantees sufficient and stable national tax revenue while taking into account the tax burden of taxable corporations. A clear statutory tax rate is not only simple and feasible but also transparent and easy to supervise. Although the calculation of the nominal corporate income tax burden is simple, in practice, the state has formulated a series of preferential corporate income tax policies such as tax exemptions, tax reductions, and there are regional differences in tax collection and management, so in the process of corporate income tax payment, There are several contributing factors affecting the nominal tax burden of corporate income tax to vary substantially from the real tax burden of corporate income tax. As a result, businesses with similar nominal tax burdens do not have the same real tax burden. Therefore, compared to the statutory tax burden, the real corporate income tax burden can better reflect the true income tax burden of the corporate.
(2) The real tax burden on corporate income
The real corporate income tax burden is the proportion of the real income tax which have been paid by the enterprise to the real operating income of the enterprise which represents the true level of the corporate income tax burden. Since the real tax burden of corporate income tax can better reflect the true tax burden of a company. This thesis will also study the actual tax burden on corporate income tax.
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2.3.3 Measurement of Real Tax Burden on Corporate Income
Due to the different situations of corporations, their real tax burdens are different under the same nominal tax rate. Therefore, we will use the real income tax rate to measure the level of the corporate income tax burden. “Effective rates are specifically designed to assess tax burdens as well as the impact of taxes on the economic activity.
The effective rate is the product of the statutory rate and the tax base.” (Giannini &
Maggiulli (2001, p. 2)).
The measurement of the real tax burden of corporate income tax mainly includes two calculation methods: the marginal effective tax rate (EMTR) and the average effective tax rate (EATR).
The marginal effective tax rate (EMTR) is defined as The interest rate divided by the required pre-tax rate of return is the difference between the required pre-tax rate of return and the interest rate. The average effective tax rate (EATR) can be roughly defined as the weighted average of the EMTR and the statutory tax rate.
In my thesis, I will use the average effective tax rate method, which can select more mutually exclusive items and analysis their effect within the corporations.
Now we can get the formula of ETR1 based on a previous study from Dandan Dang, Hong sheng Fang, Minyuan He (2019). ETR2 and ETR3 is both from the main ETR measurement method used in Willem Buijink, Boudewijn Janssen, Yvonne Schols (1995).
𝐸𝑇𝑅1 = 𝑖𝑛𝑐𝑜𝑚𝑒 𝑡𝑎𝑥 𝑒𝑥𝑝𝑒𝑛𝑠𝑒𝑠 − 𝑑𝑒𝑓𝑒𝑟𝑟𝑒𝑑 𝑖𝑛𝑐𝑜𝑚𝑒 𝑡𝑎𝑥 𝑒𝑥𝑝𝑒𝑛𝑠𝑒𝑠
𝑃𝑟𝑒 𝑡𝑎𝑥 𝑖𝑛𝑐𝑜𝑚𝑒 (2.1)
𝐸𝑇𝑅2 = 𝐼𝑛𝑐𝑜𝑚𝑒 𝑡𝑎𝑥𝑒𝑠
𝑝𝑟𝑒 − 𝑡𝑎𝑥 𝑖𝑛𝑐𝑜𝑚𝑒 (2.2)
𝐸𝑇𝑅3 =𝐼𝑛𝑐𝑜𝑚𝑒 𝑡𝑎𝑥𝑒𝑠 − (𝑑𝑒𝑓𝑒𝑟𝑟𝑒𝑑 𝑡𝑎𝑥𝑡 − 𝑑𝑒𝑓𝑒𝑟𝑟𝑒𝑑 𝑡𝑎𝑥𝑡−1)
𝑝𝑟𝑒 − 𝑡𝑎𝑥 𝑖𝑛𝑐𝑜𝑚𝑒 (2.3)
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Considering the data available and the scientific existence of the measurement process, this thesis uses the method of formula 3 to measure the actual income tax rate, that is, the calculation of the ETR in this article is
𝐸𝑇𝑅 =𝐼𝑛𝑐𝑜𝑚𝑒 𝑡𝑎𝑥𝑒𝑠 − (𝑑𝑒𝑓𝑒𝑟𝑟𝑒𝑑 𝑡𝑎𝑥𝑡 − 𝑑𝑒𝑓𝑒𝑟𝑟𝑒𝑑 𝑡𝑎𝑥𝑡−1)
𝑝𝑟𝑒 − 𝑡𝑎𝑥 𝑖𝑛𝑐𝑜𝑚𝑒 (2.4)
Where 𝑝𝑟𝑒 − 𝑡𝑎𝑥 𝑖𝑛𝑐𝑜𝑚𝑒 is earning before interest and taxes. 𝑑𝑒𝑓𝑒𝑟𝑟𝑒𝑑 𝑡𝑎𝑥𝑡 is the difference between current deferred income tax liabilities and current deferred income tax assets in the company's annual report.
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2.4 Methodology in this Thesis
The regression model is a mathematical model that quantitatively describes statistical relationships. Based on John Fox (2016, P83). The mathematical model of linear regression can be expressed as:
𝑌 = 𝐵0+ 𝐵1× 𝑋 + 𝐸 (2.4)
In this formula, Y is the dependent variable, X is the independent variable, 𝐵0 and 𝐵1 are slope coefficients of the independent variable, which is the average change in Y associated with a one-unit increase in X. 𝐸 is the residual, it is independent of each other and obeys the same normal distribution, it is also a random variable.
In my topic, the mathematical model of multiple linear regression can be expressed as the formula in John Fox (2016, P96), For the general case of k explanatory variables.
The formula shows the below:
𝐸𝑇𝑅𝑡= 𝐵0+ 𝐵1∙ 𝑋𝑖1+ 𝐵2 ∙ 𝑋𝑖2+ 𝐵3∙ 𝑋𝑖3+ ∙∙∙∙∙ +𝐵𝑘∙ 𝑋𝑖𝑘 + 𝐸𝑡 (2.5)
In this formula, 𝐸𝑇𝑅𝑡 is the dependent variable, 𝑋𝑖𝑘 is the independent variable, 𝐵𝑘 are slope coefficients of the independent variable, which characterizes the degree to which the independent variable affects the dependent variable. 𝐸𝑡 is the residual.
And we will use some previous research as the basement of my study of the relationship between tax burden on business entities and any other factors.
Zimmerman (1983) put forward the political cost hypothesis for the first time. By observing 50 large-scale listed companies from 1947 to 1981, he found the larger the size of the company, the higher the real tax burden of the company. The correlation between the two in monopolistic industries is more significant. He tried to explain why the real tax burden of the size of a corporation is inversely proportional to its size. And believes that the larger the scale of the company, the more likely it is to receive high attention from the public, and the higher the political cost, the higher the real tax burden.
More prosperous companies have higher visibility, which makes them more vulnerable to political supervision and actions by local governments, creditors, customers, and product suppliers, and other direct stakeholders.
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Siegfried (1972) attempted to demonstrate that a corporation's real tax burden is negatively associated with its size. The larger the corporation is, the easier it is to lobby the government. Thereby they can reduce the tax burden. Large firms, according to his study, have a lower ETR since they have more leverage to sway political mechanisms in their favor, participate in tax preparation, and organize operations to save money on taxes.
Derashid and Zhang (2003) used data of Malaysian companies that traded on the Kuala Lumpur Stock Exchange from 1990 to 1999 as a sample. They used regression analysis to study the relationship between ETR and several different variables. The study found that Malaysian companies with larger sizes would pay fewer effective taxes than Malaysian companies with smaller sizes, which would indicate that the size of a company’s company has a 95 percent statistically significant negative impact on its real income tax burden.
However, other research does not support the two views above. In their multiple variable regression model, Gupta and Newberry (1997) used many asset portfolio variables and leverage, with ETR as the explained variable. but did not find the company size effect in those companies. No significant correlation was found between the size of the company and the ETR of the company.
Firms with a large proportion of capital assets have a lower tax burden, according to the effect of asset structure on the actual tax burden of corporate income tax, according to Gupta and Newberry (1997), due to tax incentives.
Stickney and McGee (1982) used US data to study the relationship between capital intensity and ETR in the context of a multivariate system and found that there was a significant negative correlation between capital intensity and corporate income tax burden.
Janssen (2005) used the financial statement data of 1,592 companies from 1994 to 1999 to investigate the real income tax burden of Dutch companies and found that the capital intensity of a company has a statistically significant impact on the real corporate income tax burden. Regarding study the impact of financing structure on the real tax
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burden of corporate income tax, ETR is linked to enterprise expenditure and funding decisions, according to Gupta and Newberry (1997). Companies' investment and financing decisions can influence ETR because tax regulations usually allow Different tax treatments are adopted for structural decisions.
Roman and Richardson (2007) have studied the factors that influence the variability of the Australian company's ETR across tax reforms. The study found that although the tax reform had an impact on ETR, the reformed ETR still showed a significant negative correlation with the corporate financing structure.
Sebastian Lazar (2011) used the data in the company's financial report to calculate the effective corporate income tax rate for non-financial firms on the stock exchange at Bucharest Stock Exchange from 2000 to 2009. Except for 2009, the analysis showed that the effective tax rate of the benefits tax/pre-tax income ratio measured over the entire period was lower than the statutory tax rate, and the discrepancy was adopted as the single tax was reduced. According to correlation analysis on ROA, the difference between the effective tax rate and the legal tax rate is significantly negatively correlated with the return on assets.
Almas Heshmati, Dan Johansson, Carl Magnus Bjuggren (2010) analyzed the effect of ETR on the distribution of corporate size. When they are modeling this relationship, in terms of enterprise-scale level, industry and time. On the variability of the impact of the effective corporate tax rate and the distribution of corporate size, some hypothesis tests were conducted. The findings are based on data from the Swedish economy from 1973 to 2002. The descriptive results indicate that the ETR varies depending on the size of the organization, its market, and its time in business.
Janssen and Buijink (2000) studied the fairness of the income tax burden of Dutch companies, using multiple regression and least-squares methods to perform regression analysis on multiple factors that affect the real tax rate. The study found that certain characteristics of Dutch companies are closely related to the real income tax rate. The company characteristics that have an important impact on ETR include such as
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company size, company performance, asset density, degree of external operations, financial leverage, whether it is a listed corporation, and the corporate's loss status.
After all these studies, now we can list a form about the relationship between the corporate income tax burden and other factors.
Table 2.1 Research on the relationship between influence factor and ETR
Name Influencing factors Object
Zimmerman (1983) Size of corporation ETR
JOHN J. SIEGFRIED (1972) Size of corporation ETR
Gupta and Newberry (1997)
Size of the corporation, capital structure,
asset portfolio, performance
ETR
Stickney and McGee (1982)
Capital intensity, Size of the corporation,
Degree of debt (leverage ratio)
ETR
Janssen (2005) Capital intensity ETR
Roman and Richardson (2007) Corporate financing structure. ETR
Sebastian Lazar (2011) Return on assets (ROA) ETR Almas Heshmati,
Dan Johansson,
Carl Magnus Bjuggren (2010)
Size of corporation ETR
Janssen and Buijink (2000)
Company Size,
Company Performance, Asset Density,
Financial Leverage
ETR
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These studies have important implications for the selection of factors affecting the corporate income tax burden and the role of this article. It has a very important reference value in terms of mechanism analysis and many other analysis methods.
And based on these studies, I will put forward the factors affecting the corporate income tax burden that we will study in chapter 4.
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3. Principles of Corporate Income Tax in China
In this chapter, I will introduce the Chinese taxation environment and the corporate income tax in China. The first part and second part of this chapter are about the corporate income tax in China and the Chinese taxation environment, the third part is about the development of the corporate income tax system. I will use the main description method in this chapter, to showing the overview of China's tax environment.
3.1 Corporate Income Tax and in China
Corporate income tax is a form of income tax imposed on a company's or legal person's production and service income, as well as other income. Corporate income tax is being levied on enterprise production income, operating income, and other income activities. It is a type of tax used by the state authority to participate in the distribution of corporate profits and adjust the level of corporate profitability.
According to the corporate income tax law of the People's Republic of China (2019). China’s corporate income tax rate is 25%. But in the meantime, eligible companies in China’s encouraging industries (such as high-tech companies and some integrated circuit manufacturing companies) can bear a low tax rate of 15%. Corporates engaged in projects encouraged and supported by the state can bear regular discounts and exemptions.
Chinese tax-resident enterprises also have the opportunity to bear various other tax benefits. Under the new tax law of China, there are more detailed regulations on tax- resident enterprises, special tax adjustments, and special reorganizations.
Then we are going to talk about the current corporate income tax situation in China, which has these 3 following characteristics:
(1) The tax burden is direct and difficult to pass on. The corporate income tax is either calculated or paid to the government based on the operating results as the tax base. Taking business income as the tax base is also one of the most essential
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characteristics and differences of corporate income tax as an independent tax, and other characteristics of the tax are derived from this feature. Corporate income tax generally adopts the broadest income definition. Regardless of how the corporate income is obtained or realized, if it can be described as Non-tax-exempt income, which is the income should be taxed to the letter of the law.
(2) The levy of corporate income tax is complicated, which is manifested in the diverse types of corporate income taxpayers, and even different branches of the same legal entity need to pay taxes. my country’s corporate income tax is different from the practice of only levying corporate income tax on companies or legal persons in some other countries in that the subject to be levied includes most enterprises, including legal persons or unincorporated persons, branches, or non-branch companies (except for one- person companies and partnership companies).
(3) The calculation of corporate income tax is closely related to corporate financial accounting.
The relationship between corporate income tax and accounting is mainly manifested in two aspects: First, the algorithm and payment of corporate income tax are much more complicated than other types of taxes, and it needs to have a complete standard corporate financial accounting system and standards to support it because all companies pay corporate income tax requires the same calculation logic, which is conducive to maintaining the fairness of taxation. Second, the taxable income of corporate income tax is calculated based on corporate accounting profits, and corresponding tax adjustments are made on this basis. Therefore, the two are both related and different.
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3.2 Introduction of Chinese taxation environment
First, we will introduce the supervision system and the main supervision mechanism of China.
3.2.1 Regulation and Supervision system of Chinese taxation
There are 720,000 employees in China’s taxation system, of which 1,536 are from the State Administration of Taxation and 719,000 are from the tax bureau system.
In March 2018, after the merger of the national taxation and local taxation agencies, China implemented a management system with the State Administration of Taxation as the mainstay and dual leadership with the provincial government. Figure 3.1 shows the main organization of the Chinese taxation system.
Figure 3.1 Organization of the Chinese Taxation system
Source: State Taxation Administration Annual Report of China (2019)
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The State Administration of Taxation is an agency directly under the State Council.
Figure 3.2 Organization of the State Administration of Taxation
Source: Fuli Cao (2011, p.5)
The State Administration of Taxation is an agency directly under the State Council.
The predecessor of the State Administration of Taxation was the State Administration of Taxation of the Ministry of Finance which was established in 1950.
In 1994, China implemented the reform of the tax-sharing fiscal system and established separate national taxation bureaus and local taxation bureaus at and below the province level. The State Administration of Taxation implements the vertical management of the State Administration of Taxation system in terms of organization, staffing, staff, and funds, and cooperates with the provincial people's government to exercise dual leadership over the provincial and local taxation bureaus.
3.2.2 Chinese taxation environment
According to the paying tax 2020 report jointly issued by PricewaterhouseCoopers and the World Bank. In the past two years, China has led the world in terms of the
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number of tax payments, the timing of tax payments, and corporate income tax correction declarations, and the overall taxation indicators have ranked among the top three among the BRIC countries. The World Bank also gave positive comments on China's achievements in optimizing and upgrading electronic tax declaration and payment systems.
Even though the current tax environment in China has been greatly improved, the nominal macro tax burden is relatively low, and the real macro tax burden is relatively high. This is the current situation of the Chinese macro tax burden. There are also obvious regional differences in the level of China’s tax burden.
The level of the tax burden in a region is closely related to economic growth and the size of the total economy, and the degree of tax burden difference should be adapted to the difference in regional economic levels (rich and poor). The more developed the economy and the faster the development of the region connected to the stronger the ability to bear the taxation, and its tax accounted for the proportion of GDP. However, China's regional economic growth and the level of macro tax burden are relatively unbalanced, which greatly hinders the rapid economic development of underdeveloped regions.
These differences mainly come from:
1. The government consciously implements an unbalanced economic growth strategy. In the early stage of reform and opening, the government could not make large- scale investments in all regions of the country. It could only consciously tilt towards the eastern region to drive the eastern economy to grow first. Among the administrative means, planning means, legal means, and economic means adopted, tax preference measures can effectively construct regional taxation advantages and play an economic regulation role. This makes the tax burden in this area lighter than in the economically backward western region.
2. The influence of industrial structure. The industrial structure determines the structure of tax sources and thus the level of the tax burden. China is currently exempt from agricultural tax, and the tax burden on the primary industry is very small. The
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secondary industry is less subject to natural constraints, so the tax burden is heavier.
Although the tertiary industry has a wide tax base and a wide range of tax sources, it can bear a heavy tax burden. But for a long time, China has also placed a low tax burden on the tertiary industry as part of its policies to promote its growth. Therefore, the industrial composition ratio is one of the reasons for the difference in tax burden among the three major economic regions.
3. The influence of ownership structure. In order to encourage the popular growth of multiple economic sectors, China has implemented a variety of preferential policies for non-state-owned economies, including various preferential tax policies. China has introduced several preferential policies for non-state-owned economies, including various preferential tax policies, to promote the common growth of multiple economic sectors. State-owned corporations have a higher tax burden than non-state-owned corporations, and domestic and enterprises funded by foreign will have different tax policies. Ownership and foreign-funded businesses get more tax breaks.
4. The impact of differences in price levels. Price changes are more sensitive to the impact of tax revenue. China's tax system is dominated by turnover taxes. The acceleration of commodity circulation and rising prices will cause turnover tax revenues and therefore total tax revenue to increase. As the Chinese marketization process accelerates, commodity prices in various regions are determined by the market.
However, due to differences in regional resources and inter-regional transportation costs, prices vary from region to region. This makes regional price index differences cause differences of the tax burden between regions.
5. The impact of the difference in extra-budgetary income. A large amount of extra-budgetary income seriously erodes tax sources, affects tax revenues, and increases tax burdens. There is a trade-off relationship between off-budget revenue and tax revenue. Regions with large increases in off-budget revenue have relatively lighter tax burdens, while regions with smaller increases in off-budget revenue have relatively heavier tax burdens.
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3.3 Develop in Corporate Income Tax System of China
China began its economic reform and an open-door policy in 1978. After 1978, China's tax reform process can be roughly divided into three stages: The first stage is from 1978 to 1993. This is the initial stage of China’s tax system reform after reform and opening. It started with the establishment of a foreign-related taxation system and then implemented it. State-owned enterprise "profits to tax" and comprehensive reform of the industrial and commercial taxation system. The second stage is from 1994 to 2013, which is the stage of deepening of the tax system reform after China's reform and opening up, and the third stage starts in 2013, which is the stage of perfecting the tax system reform after China’s reform and opening up. The third stage started in 2013.
This is the stage of tax reform and perfection after China’s reform and opening.
3.3.1 From 1978 to 1993
From the end of 1978 to 1982, China put forward the task of reforming the economic system and proposed to formulate the overall reform plan and implementation steps as soon as possible.
On July 1, 1979, the National People's Congress passed the People's Republic of China Sino-Foreign Joint Venture Law. On April 12, 1986, the National People's Congress passed the Law of the People's Republic of China Concerning Wholly Foreign Owned Enterprises.
During this period, various levels of taxation agencies were generally established, the status of provincial taxation agencies was improved, and the system of two-stage leadership of the local government and higher taxation agencies by tax agencies below the province was restored. The number of personnel in the national taxation system increased from 179,000 in 1979. The number of employees increased to 286,000, of which 80,000 tax staff were added in 1981 by State Council.
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From the perspective of the tax system, the fiscal and taxation departments have proposed preliminary ideas and implementation steps including the levy of income tax by state-owned corporations, personal income tax, etc., and determined that to assist in the introduction of the country's liberalization agenda (opening-up policy), the first step is to solve the problem of external taxation.
The "Income Tax Law of the People's Republic of China on Sino-foreign Equity Joint Ventures," the "Individual Income Tax Law of the People's Republic of China,"
and "The Foreign Enterprise Income Tax Law of the c" were all passed by the Fifth National People's Congress of China between 1980 and 1981. At the same time, Chinese foreign joint ventures, foreign companies, and foreigners continue to use tax regulations formulated in the 1950s and continue to collect industrial and commercial consolidated tax, urban real estate tax, and vehicle and vessel license tax.
In the mid-1980s, China has pushed for the development of support of a sustainable commodity economy. In terms of ownership theory, it put forward the argument of separation of ownership and management rights and affirmed the necessity and importance of the existence of collective economy, individual economy, and private economy.
In 1983, the State Council of China started to implement the "profit-to-tax" reform of enterprises owned by states across the country. This system for state-owned companies to send profits to the government that had been in place for more than 30 years after the establishment of the People's Republic of China was modified to a corporate income tax system, which was initially effective.
In 1991, China merged the Income Tax Law of Sino-foreign Joint Ventures with the Income Tax Law of Foreign Enterprises and formulated the "Income Tax Law of the People's Republic of China on Foreign Investment Enterprises and Foreign Enterprises"
In addition, the construction of tax staff and tax institutions during this period was further strengthened, and tax staff continued to increase substantially: In 1983 and 1985, the State Council approved the increase of 40,000 and 100,000 tax staff; in 1988, the
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State Council’s institutional reforms The State Administration of Taxation of Ministry of Finance was upgraded to the State Administration of Taxation, and the dual leadership of the taxation system and the leadership system based on vertical leadership were strengthened.
China conducted a thorough examination of tax reforms from 1978 to 1993, and the reforms gradually intensified. Initially, a new tax system was created, with the key entities being goods and labor taxes, income taxes, and property taxes, and other taxes.
3.3.2 1994~2013
After 1992, China made a series of important decisions on accelerating reform, opening up, and economic development. Since then, the fiscal and taxation departments have begun to accelerate the preparations for tax reform.
China began reforming its tax system in 1994. The key goal of its corporate income tax reform is to combine the different corporate income taxes imposed on state-owned, collective, and private entities into a single corporate income tax.
In April 1993, the State Administration of Taxation under the management of the Ministry of Finance was upgraded to an agency that was directly managed under the State Council and renamed the State Administration of Taxation. In 1994, taxation agencies below the provincial level were divided into two levels, first level is the State Taxation Bureau and then the Local Taxation Bureau; the number of personnel in the national taxation system increased from 581,000 in 1993 to 753,000 in 1995.
In 2007, In the past, China combined the corporate income tax imposed on domestic and foreign-funded companies and formulated the "Corporate Income Tax Law of the People's Republic of China", which has come into effect in 2008.
Since the establishment of the People's Republic of China, the 1994 tax reform was the most comprehensive, profound, and popular reform.
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3.3.3 After 2013
After 2013, China's Ministry of Finance and State Administration of Taxation began to phase in a policy to replace business taxes with value-added taxes.
The Provisional Regulations on Business Tax have been repealed since May 1, 2016, and the Provisional Regulations on Value Added Tax have been amended in 2017.
Furthermore, the value-added tax rate and collection rate have been modified to align the expectations for small-scale taxpayers. Based on the approval of the State Council, the Chinese Ministry of Finance and the State Administration of Taxation have modified certain tax items and tax rates in the consumption tax. In terms of tariffs, the rate of decrease in import tariffs tends to be incremental. In 2017, China revised individual provisions of the Corporate Income Tax Law.
In 2018, the Chinese tax system includes 18 taxes, such as value-added tax, consumption tax, vehicle purchase tax, customs, corporate income tax, personal income tax, value-added tax of land, real estate tax, urban land use tax, farmland occupation tax, deed tax, resource tax, truck and vessel tax, ship tonnage tax, stamp duty, urban maintenance and building tax, cigarette tax, and environmental protection tax are some of the taxes that are imposed.
The provincial level and lower-level state taxation bureaus were consolidated in 2018 to minimize collection costs, clarify duties, increase collection and management performance, and provide taxpayers with more high-quality, reliable, and convenient services.
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4. Evaluation of corporate income tax burden on business entities
Electronic equipment, as well as various electronic parts, computers, instruments, and meters, are developed and produced in the electronic industry. According to data from China's Ministry of Industry and Information Technology's Electronic Information Industry Bulletin. In the complex international environment, the advantages of China's electric manufacturing industry and the large market size highlight the characteristics of strong industrial resilience. The complete industrial chain, the advantage of manufacturing resources, and the huge consumer market have made China a global manufacturing base for mobile phones, computers, and communication network equipment. Prompting China to maintain relatively rapid growth in the electrical manufacturing industry in the stage of industrial structure optimization and adjustment.
China's electric manufacturing industry is still growing at 3.6 percentage points faster than the global industry in 2019, and the main business income accounts for more than 12% of the industry. This is an increase of 0.3 percentage points from the previous year.
Take the semiconductor field as an example. According to data from the Global Semiconductor Association SIA, global semiconductor revenue fell by 12% in 2019.
China’s semiconductor market revenue occupies 1/3 of the world’s revenue, which is equivalent to the sum of the United States, the European Union, and Japan.
From the above analysis, the importance of the electrical manufacturing industry to China's national economy and its position in the industry is very highly valued. The real corporate income tax burden is an important factor that affects the after-tax profits of corporations. Therefore, it is very important to study the real tax burden of electronic corporation’s income tax.
In the next parts of analysis electronic industry’s real corporate income tax burden.
Based on theoretical analysis of literature, statistical analysis of data, and panel data analysis, my thesis will propose reasonable hypotheses, establish corresponding models,
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and uses empirical methods for research and verification. This study uses a combination of descriptive statistical analysis and multivariable regression analysis.
Through the WIND, CSMAR database, and the annual reports published by the Shanghai Stock Exchange and the Shenzhen Stock Exchange, we have obtained direct and indirect tax data of 452 listed corporations in the electrical manufacturing industry in recent years. Under the requirements of Chinese accounting standards. Through reasonable conversion, we quantify the real tax burden on corporate income of corporations, and after that, we will make relevant recommendations. In terms of descriptive statistical analysis and regression analysis, STATA15 and EXCEL software are mainly used for our data processing.
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4.1 Sample selection, design of influence factors, and research hypothesis
In this part, I will introduce the sample selection, design of influence factors, and research hypothesis we will use in the thesis. The first is about the sample selection.
4.1.1 Sample selection
The sample is select by a total of 452 listed companies in the A-share electronic communication equipment manufacturing sector in China's Shanghai and Shenzhen stock exchanges from 2014 to 2019. The sample data mainly comes from the annual financial report data of listed companies published by WIND and CSMAR databases., and the following data are also excluded:
⚫ Listed companies with incomplete annual report data.
⚫ The company’s operations are abnormal, and zero revenue appears, or the stock market is marked with the ST mark (On 22.04.1998, the Shanghai and Shenzhen Stock Exchanges declared the stock transactions of listed companies with irregular financial or other circumstances would receive special care. This form of stock is known as ST shares because "special care" is prefixed with "ST" before the abbreviation. The irregularity mainly applies to two circumstances: The first occurs when the listed company's net profit after auditing for the previous two fiscal years is negative, and the second occurs when the listed company's audited net assets per share in the most recent fiscal year is less than the stock's par value).
⚫ Exclude companies with income tax less than 0.
⚫ Companies with incomplete tax data or calculated tax burden data.
After screening, a total of 50 companies listed on the Shanghai and Shenzhen stock exchanges in the electronic manufacturing industry were selected as effective samples for analysis.
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4.1.2 Design of influence factors
Based on the existing research literature and theoretical analysis combined with the characteristics of the researched industry, this thesis considers the research of corporation size, capital structure, company performance, the natural logarithm of income taxes, and ROA as the micro influence factors, and then we will use the natural logarithm of GDP and natural logarithm index of China's Shanghai stock exchanges as the macro influence indictors as the independent variable.
For depend variable, we will use effective income tax rate (ETR) as the dependent variable. This showing in the formula below:
𝐸𝑇𝑅 =𝐼𝑛𝑐𝑜𝑚𝑒 𝑡𝑎𝑥𝑒𝑠 − (𝑑𝑒𝑓𝑒𝑟𝑟𝑒𝑑 𝑡𝑎𝑥𝑡 − 𝑑𝑒𝑓𝑒𝑟𝑟𝑒𝑑 𝑡𝑎𝑥𝑡−1)
𝑝𝑟𝑒 − 𝑡𝑎𝑥 𝑖𝑛𝑐𝑜𝑚𝑒 (4.1)
The 𝑝𝑟𝑒 − 𝑡𝑎𝑥 𝑖𝑛𝑐𝑜𝑚𝑒 is earning before interest and taxes (EBIT) in the income statement of an annual report from those analyzed corporations. 𝑑𝑒𝑓𝑒𝑟𝑟𝑒𝑑 𝑡𝑎𝑥 is the difference between current deferred income tax liabilities and current deferred income tax assets in the company's annual report.
In micro-level of the independent variable. For size of the corporation, based on the study method applied in Der-Fen Huang, Ni-Yun Chen and Ko-Wei Gao's (2013) paper. company size is measured as the natural logarithm of total assets. For the capital structure of corporations. Myers (2001) uses debt-to-capital ratios to measure the capital structure of corporations. For company performance, based on Andy Neely’s (2002) study, who uses financial ratios like current ratio and quick ratio to measure it.
And for income tax, we will use the natural logarithm of income tax to analyze it.
After that, now we can conclude those dependent influence factors.
Table 4.1 Conclusion of those dependent influence factors
Abbreviation Variable Calculation method
CR Company performance Current ratio
SIZE Size of corporation Natural logarithm of total assets
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Abbreviation Variable Calculation method
IT Income tax Natural logarithm of income tax
LEV Capital structure Debt-to-capital ratio
ROA Return on assets Return on assets
SZ SZ index Natural logarithm of SZ index
GDP GDP of China Natural logarithm of GDP
4.1.3 Research hypothesis
Based on the research of domestic and foreign scholars on the negative influence factors of corporate income tax, combined with the current situation of China's electric manufacturing industry and previous theoretical analysis, this thesis makes the following assumptions about the correlation between various factors and the real corporate income tax burden:
For the micro level, we give those assumptions:
⚫ Assumption 1: The company size of the electrical manufacturing industry is negatively correlated with the real corporate income tax burden.
⚫ Assumption 2: The debt-to-capital ratio of the electrical manufacturing industry has a negative correlation with the real corporate income tax burden.
⚫ Assumption 3: The current ratio of automobile manufacturing companies is negatively related to the real corporate income tax burden.
⚫ Assumption 4: The ROA of corporations of the electrical manufacturing industry has a negative correlation with the real corporate income tax burden.
⚫ Assumption 5: The income tax of corporations of the electrical manufacturing industry has a positive correlation with the real corporate income tax burden.
For the macro level, we give those assumptions:
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⚫ Assumption 6: The GDP of China does not correlate with the real corporate income tax burden.
⚫ Assumption 7: The Shenzhen stock exchange index has no clear correlation with the real corporate income tax burden.
4.1.4 Regression model
This thesis establishes a multivariable linear regression analysis model to study the degree of influence of each variable on the dependent variable and the correlation between them. The specific model set is as follows:
𝐸𝑇𝑅𝑖,𝑡 = 𝐵0+ 𝐵1∙ 𝐶𝑅𝑖,𝑡 + 𝐵2∙ 𝑆𝐼𝑍𝐸𝑖,𝑡+ 𝐵3∙ 𝐼𝑇𝑖,𝑡+ 𝐵4∙ 𝐿𝐸𝑉𝑖,𝑡+ 𝐵5∙ 𝑅𝑂𝐴𝑖,𝑡 +𝐵6∙ 𝑆𝑍𝑖,𝑡 + 𝐵7∙ 𝐺𝐷𝑃𝑖,𝑡+ 𝐸𝑖,𝑡 (4.2) Among them, 𝑖 represents the 𝑖 − 𝑡ℎ company, and 𝑡 represents different years from 2015 to 2019. 𝐵𝑖 represents slope coefficients of the independent variable, which characterizes the degree to which the independent variable affects the dependent variable. 𝐸𝑖,𝑡 is the residual. CR is the current ratio of those selected companies. SIZE is the natural logarithm of total assets. IT is the natural logarithm of income tax. LEV is the debt-to-capital ratio. ROA is the return on assets of those selected companies. SZ is the natural logarithm of the SZ index. GDP is the natural logarithm of the GDP of China.
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4.2 Descriptive statistical analysis
In this part of chapter 4. At first, we are going to analyze the dependent variable.
Then we will do the descriptive statistical analysis of independent variables.
4.2.1 Descriptive statistics of the dependent variable
First, we will conduct an overall descriptive statistical analysis of the ETR of a total of 250 research samples of selected listed companies in the electronics manufacturing industry from 2015 to 2019. The results will be shown in table 4.2 below.
Table 4.2 Descriptive statistics to ETR from 2015-2019
Year Variable Mean Sd Min Max Number
2015 ETR 0.185 0.074 0.068 0.442 50
2016 ETR 0.191 0.107 0.015 0.684 50
2017 ETR 0.153 0.058 0.014 0.301 50
2018 ETR 0.147 0.117 0.017 0.803 50
2019 ETR 0.135 0.088 0.014 0.397 50
TOTAL ETR 0.162 0.093 0.014 0.803 250
It can be seen from Table 4.2 that the average ETR of the sample population in 5 years is 0.162. The ETR of China’s electric manufacturing companies is 0.185, 0.191, 0.153, 0.147, 0.135, which are all lower than the national legal tax rate of 25%. In addition, the table also shows that the ETR of very few companies is relatively high, with the maximum value even reaching 0.803. This shows that there are a small number of companies in the electrical manufacturing industry that have insufficient tax planning systems and heavy corporate income tax burdens, but in general, the overall income tax burden of the industry is relatively light. On the other hand, it may show that some data of our companies might be incorrect.
