Advance Tax Payment and Tax Volatility

40 Pages Posted: 2 Oct 2023 Last revised: 29 Nov 2023

See all articles by Fernando Siahaan

Fernando Siahaan

WU Vienna University of Economics and Business

Date Written: September 30, 2023

Abstract

This study explores the association between advance corporate income tax (CIT) payment and tax payment volatility. Specifically, I investigate the relation of the estimation base and the frequency of advance payment with the volatility of the cash effective tax rate (CETR). The aim of advance CIT payment is to promote convenient and disciplined tax payment while ensuring consistency in tax payment patterns. However, if tax payment become volatile due to the underlying tax payment design, this could potentially harm both taxpayers and their stakeholders. My empirical results indicate that using the current year as the estimation base and increasing the frequency of advance payment are linked to reduced tax volatility. Using the current year as the estimation base and increasing the frequency of advance payment also moderates the insensitivity of tax payment to income changes and lowers the level of outstanding tax liability. This research enhances the existing literature on the factors contributing to tax volatility by providing empirical evidence of how tax payment design is associated to tax volatility. These findings provide insights for policymakers designing advance payment policy that minimize tax volatility.

Keywords: advance tax payment, tax volatility, corporate income tax

JEL Classification: H25

Suggested Citation

Siahaan, Fernando, Advance Tax Payment and Tax Volatility (September 30, 2023). WU International Taxation Research Paper Series 2023-08, Available at SSRN: https://ssrn.com/abstract=4589052 or http://dx.doi.org/10.2139/ssrn.4589052

Fernando Siahaan (Contact Author)

WU Vienna University of Economics and Business ( email )

Welthandelsplatz 1, Building D1, 3rd Floor
Vienna, 1020
Austria

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