Income tax liability for large corporations in China: 1998‐2007

Abstract

Purpose

The purpose of this paper is to examine long‐term income tax liability for Chinese public corporations from 1998 to 2007. It also studies the factors that are associated with Chinese firms' long‐run effective tax rates.

Design/methodology/approach

The paper uses the measurement of long‐run effective tax rate, developed by Dyreng et al., which is measured as the sum of taxes paid over ten years divided by the sum of pretax book income over those same ten years. This paper is an empirical study using the financial report data collected from China stock market financial statement database and corporate ownership structure change from SINA Finance database. The tests include both univariate and multivariate tests.

Findings

The paper's findings are: ten‐year effective tax rates are considerably lower than the statutory tax rate; ten‐year effective tax rates vary significantly across industries and geographic areas; profitability, firm size, capital structure, and capital intensity are all associated with ten‐year effective tax rates; corporate ownership structures, i.e. tradable vs non‐tradable shares, are related to ten‐year effective tax rates.

Research limitations/implications

Given that corporate ownership has changed dramatically in China in recent years, future studies should be conducted to explore the association between effective tax rates and ownership changes.

Practical implications

The paper is of interest to the policy makers, corporate managements, and academics, who seek to examine corporate income tax burden and the factors associated with tax rates over the long term. Given that corporate ownership has changed dramatically in China in recent year, future studies should be conducted to explore the association between effective tax rates and ownership changes.

Originality/value

The paper differs from Dyreng et al.'s paper in 2007. While Dyreng et al. conduct a univariate analysis on the association between firm characteristics and long‐run effective tax rates, this paper employs multivariate regression models to examine what factors are associated with long‐run effective tax rates. Second, this paper examines the relationship between corporate ownerships and effective tax rates.

Citation

Zeng, T. (2010), "Income tax liability for large corporations in China: 1998‐2007", Asian Review of Accounting, Vol. 18 No. 3, pp. 180-196. https://doi.org/10.1108/13217341011089612