THE IMPACT OF A VALUE-ADDED TAX ON THE CASH FLOW OF CORPORATIONS (CORPORATE INCOME TAX, TAX).

摘要

Advocates of a value-added tax claim VAT is superior to the existing corporate income tax (CIT) in the area of economic efficiency, i.e., tax neutrality. Since tax neutrality is a major criterion for tax policy analysis, VAT's superior allocative efficiency relative to a corporate income tax is an argument VAT proponents use to promote adoption of a value-added tax. VAT supporters maintain that CIT distorts allocation of production resources while VAT, a proportional tax, is insensitive to production methods or use of production resources.; This argument is questionable because assessments of corporate income tax neutrality automatically include the impact of CIT on corporate cash flow since CIT, classified as an expense, is a cash drain. The incidence issue aside, VAT is not considered an expense but a pass-through liability with cash flow impact resulting from timing differences existing between receivables, payables and government remittances. The impact of VAT on corporate cash flow is not automatically included when assessing value-added tax neutrality nor is it evident that VAT proponents have consciously considered it in their evaluations. This study empirically examines the impact of VAT on cash flows of manufacturing corporations in order that value-added tax neutrality might be better assessed.; Impact of VAT on cash flow is simulated for an assumed year of effectivity and two follow-on years. Multiple regression techniques are used to evaluate statistically the relationships between company characteristics, industry group membership and cash flow due to VAT.; The results indicate that adoption of a VAT in the United States would cause a significant change in cash flows in the year of effectivity. Strong influence by sales, payables turnover, and to a lesser extent, receivables turnover is observed. The results also indicate existence of differential cash flow impact across manufacturing industry subgroups suggesting that VAT neutrality requires rethinking.