Analysis on Willingness for Corporate Tax Credits of Small－and－Mid Sized Firms
Asian Tax Journal Vol. 12 No. 4 (2011), pp. 489-516
Abstract
This study examines whether corporate tax credits for small－and－mid sized firms (“SMEs”hereafter) are relatively bigger than those for large firms and, as a result, government’s tax policy to support SMEs are effective as a whole. Corporate tax credits ratio, the ratio of reduced tax revenues to utmost tax revenues, for SMEs was 18.7% to 22.3% since 2007, which is much bigger than the ratio for large firms －10.8% to 12.6%. This ratio can be mathematically decomposed into assumed utmost tax credits ratio under the alternative minimum tax (“MAX” hereafter) and willingness for corporate tax credits (“CREDIT” hereafter). The result of this study shows that both MAX and CREDIT of SMEs are relatively bigger than those of large firms, which implies that tax laws are prone to give relatively bigger tax credits to SMEs and SMEs adopt varios tax credits more willingly than large firms. However, those results are based upon the assumption that available tax credits are so plentiful that most firms come under the alternative minimum tax. Therefore, in case available tax credits are restricted, MAX can be lower and CREDIT can be higher than their original values respectively. Chances are that this case happens more frequently to large firms, and the gap of CREDIT has grown smaller. Accordingly, it can be inferred that large firms are rather more inclined to adopt tax credits than SMEs. In view of tax policy, the result of this study implies that SMEs are relatively lacking in sufficient knowledge of tax laws, which is needed to prevent serious penalties for inappropriate tax credits, and tax laws should be revised more clearly and unambiguously to reduce that “knowlege gap”. Furthermore, the advance ruling practice should also be applied more actively for this purpose.
Keywords
- Willingness for corporate tax credits
- Small－and－mid sized firms
- Alternative minimum tax
- Advance ruling
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