An analysis of the impact of taxation on business performance of firms listed on the Zimbabwe Stock Exchange

Abstract

This study seeks to analyze the impact of taxation on business performance of firms listed on the Zimbabwe Stock Exchange (ZSE) for the years 2014-2018. In order to meet the study objectives, desk research was conducted based on secondary data drawn from published and audited annual reports of the 63 firms listed on ZSE. The 63 firms fall into 8 different sectors of the Zimbabwean economy. Specific tests were conducted using SPSS Version 25, Augmented Dickey- Fuller (ADF), Jarque-Bera normality tests and the Philips –Perrron unit root tests. Corporate tax which is the independent variable was used as the proxy for taxation whilst Profit after Tax (PAT) represents business performance. Firm size and firm age were considered as the control variables. The conclusion was that corporate tax has a negative impact on business performance as measured by profitability whilst firm size and firm age positively impact firm profitability. This research adopted the quantitative research design. The objectives of the study were met as the findings showed that there is a significant negative relationship between Profit after Tax (PAT) and corporate tax. The level of impact of corporate tax on profitability of firms listed on ZSE was confirmed to be significant through the use of Panel Ordinary Least Square (POLS) estimator as a tool for estimation with a random effect as determined by Hausman Test. The research concludes with recommendations to the government of Zimbabwe to consider introducing tax cuts to help improve profitability for listed and other firms. To listed firms, it is recommended that they should employ services of tax experts to assist them in tax planning in order to reduce the net tax payment so as to increase profitability. Firms are further encouraged to work on increasing their asset size, as well as to ensure efficient use of those assets. Further research opportunities identified pertain to the impact of taxation on performance of State Owned Enterprises (SOE) and/or telecommunications companies in Zimbabwe. These could not be covered in this research owing to cost and time constraints.