AN EMPIRICAL STUDY TO EXPLORE THE EFFECTS OF CORPORATE TAX CUTS ON INVESTMENT: A CASE OF PAKISTAN

Abstract

Purpose The research aims to study the impacts of corporate tax rate cuts on the investment specifically in the case of Pakistan. Further, the research objectives are broken down specifically in the context of Pakistan. Methodology & Design The research has made use of the quantitative data in order to evaluate the impact of changes that have been made in the field of investment in Pakistan as a result of changes in tax rate. Since the data is quantitative in nature; therefore, statistical techniques such as regression and correlation were applied in order to identify the association and relationship between the two variables identified in this particular research. Findings The analysis leads to the acceptance of alternative hypothesis implying that there is a significant impact of coiporate tax cuts on the investment by companies in Pakistan as analyzed by means of regression and correlation analysis. Overall, it can be concluded that there is a statistically significant impact of corporate tax rate on the investment by the companies. Limitations • The researcher had limited time in which to carry out each and every aspect of the research which was a challenging task and therefore can be termed as one of the major limitations of the present research. • Secondly, the research is based on quantitative data and application of statistical tests only. • The research has taken into consideration the corporate tax rate while ignoring all other independent variables that determine the investment by companies. Another key limitation of the research relates to the application of small sample size only as a sample size of 100 individuals has been studied for this research. Recommendations • The government authorities are strongly recommended to change the corporate tax rate as per the investment needs of the country. • The businesses are recommended to take the decision considering all other factors such as solvency and liquidity risk in mind. • The government authorities are further recommended to take the decision on corporate tax rate wisely by accounting all the necessary factors and considering all the macro- economic impacts of an increase or decrease in taxation rates. • Lastly, the companies are recommended to plan their long-term investments considering the possible volatility in the macro-economic factors including the corporate tax rates.