Assessing Tax Burden Differential Between Foreign Multinationals and Local Firms: Implications for FDI Tax Incentives

Athiphat Muthitacharoen

No 127, PIER Discussion Papers from Puey Ungphakorn Institute for Economic Research

Abstract: This study uses firm-level data from ASEAN5 to examine whether there are systemic differences in how reported profit is taxed between foreign multinational and comparable local firms. Using propensity score matching, it finds that the effective tax rate (ETR: tax expense divided by pre-tax profit) of foreign MNEs is 1.8 percentage point lower than that of local firms. It also shows that the preferential tax treatment is responsible for 95% of the ETR differential. Under the baseline scenario, the associated revenue loss is 2.6% of total corporate income revenue.

Keywords: Tax Incentive; Foreign Direct Investment; Multinational Enterprises (search for similar items in EconPapers)
JEL-codes: E62 F23 H25 (search for similar items in EconPapers)
Pages: 17 pages
Date: 2020-03
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