Combatting debt bias in South African firms: The case for an allowance for corporate equity
Kari, Seppo; Khoza, Londiwe; Manjezi, Nangamso; McNabb, Kyle (2019-03)
Kari, Seppo
Khoza, Londiwe
Manjezi, Nangamso
McNabb, Kyle
UNU-WIDER
03 / 2019
Kuvaus
nonPeerReviewed
Tiivistelmä
The problem of debt bias can be tackled through either disincentivizing the use of debt financing or incentivizing the use of equity financing. Considering the South African context—in which many firms are highly leveraged and the marginal effective tax rates for using debt financing are significantly lower than those for equity financing—this study explores the case for introducing an allowance for corporate equity. We show that while such a reform would significantly neutralize the incentives to invest across debt and equity financing, our static simulations—using the NT-SARS CIT-IRP5 panel—show that it would entail a significant revenue loss to the fiscus.
Tutkimusteema
Business regulation and international economics
JEL
H21, H25, H32, O23
Avainsanat
debt bias, investment incentives, corporate tax, tax revenue, South Africa