ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846
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Company Size and Effective Corporate Tax Rate

This article examines the relationship between company size and the effective corporate tax rate for Indian private manufacturing companies in a multivariate framework, using panel data for 1992-2001. The model includes the scheduled tax rate as a proxy for time-specific effects along with the explanatory variables - financial leverage, ratio of net property, plant and equipment to total assets and exportability of the companies. Despite separating out the impact of these company characteristics, the size of the companies influences their effective tax rate. The larger the company, the lower is the effective tax rate. The article does not find very clear-cut reasons behind this negative relationship due to lack of transparency on the part of the tax department in revealing information regarding tax returns of the companies. But there may be an unknown factor, built into the political-administrative system of our country, through which larger companies are able to reduce their effective tax rate.

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