An Alternative View on Determinants of the Effective Tax Rate: Evidence from Chinese Listed Companies

ABSTRACT

This article proposes a new model for determining the effective tax rate (ETR), which incorporates the accounting-tax conformity theory and identifies ETR determinant variables to fit the Chinese taxation context. The results show that the ETR is statistically significantly associated with preferential tax rates, investment gains, nonoperating expenses, and provisions for impaired assets. The accounting-tax difference ETR determinant variables provide more consistent results than previous typical ETR determinants, such as size, return on assets, leverage, and capital intensity.

KEY WORDS:

• accounting-tax conformity
• corporate tax burden
• effective tax rate (ETR)
• ETR determinants

Notes

1. It described China as a socialist country with a market-oriented economy and government intervention.

2. Before the reform, the corporate income tax system was characterized by the form of business ownership in China: state-owned corporate income tax, the collectively owned corporate income tax, the private corporate income tax, and income tax on corporations with foreign investment and foreign corporations.

3. In order to boost the economy in the less-developed western region of the country, the State Council launched the Western Development Strategy, which involved infrastructure development, education development, preferential taxes, and other measures.

4. China Securities Market and Accounting Research.