Corporate effective tax rates: An exploratory study of South African listed firms

Abstract

The corporate effective tax rates (ETRs) of South African firms listed on the Johannesburg Stock Exchange (JSE) were examined for the period 2009 to 2017 to determine if there were any changes over this period. The study further investigated the determinants of the corporate ETRs at firm level for the same firms. Determinants which could possibly affect the ETR were identified based on theories established as well as firm characteristics, such as size, leverage, capital and inventory intensity, and profitability. Panel data of 38 firms (342 firm-years) were obtained from the IRESS database in respect of these variables. The data were then analysed using the random effect model. Empirical results indicate that the corporate ETRs of South African JSE-listed firms do not differ considerably from the corporate statutory tax rate. Although the findings show that more profitable and capital-intensive firms engage in tax strategies that result in lower ETRs, only a small portion of the variance in ETRs can be explained. In general, it can be concluded that the levying of corporate income tax in South Africa appears to be fairly neutral and tax incentives are not significantly influential on the corporate ETR.

Keywords:

• Corporate income tax
• corporate effective tax rate
• South Africa
• corporate statutory tax rate
• JSE-listed firms
• tax incentives

Acknowledgements

The researcher wishes to thank Prof Martin Kidd from the Centre for Statistical Consultation at SU for his valuable contribution regarding the analysis of data. The researcher would also like to thank the reviewers for their time and input which have been most helpful in refining and improving this article. I sincerely believe that the revised article is of a much higher standard after the recommended changes.