Corporate tax avoidance in India: an empirical study

Abstract

This research paper intends to develop a new calculate of corporate tax avoidance by measuring the long-duration cash effective tax rates prevalent among Indian corporate. This is in quite a contrast to the earlier measure that primarily focused on the annual effective tax rates. The motivation is to investigate whether the short-duration avoidance is possible for many reasons but the same may not be feasible or sustainable over a long duration. So a long-duration would give a better calculate of effective cash tax avoidance in an economy rather than the short term calculates of tax avoidance. The calculate has been simplified to widen the sample data by measuring the Corporate Tax Paid (CT) over Profit before Tax (PBT) for positive dataset available over a minimum period of ten consecutive years. To further improve the effectiveness of the measure, the same has been investigated across the corporate entities in the economy to capture the variations based on industry membership, asset base, and market value. The results reveal that around 21% of the sample corporate entities are good at managing a low cash effective tax rate that is the cash effective tax rates less than or equal to 20% in the short-duration as well as in the long duration. Similarly, the low cash effective tax rates indicate patterns in the asset base of the corporate entities and industry membership. These findings have huge implications in terms of tax policy and legislation.