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Examining the Effect of Tax Reform Determinants, Firms’ Characteristics and Demographic Factors on the Financial Performance of Small and Micro Enterprises

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  • Neba Bhalla

    (School of Humanities and Social Sciences, Thapar Institute of Engineering and Technology, Bhadson Road, Patiala 147004, Punjab, India)

  • Inderjit Kaur

    (LM Thapar School of Management, T.I.E.T, Dera Bassi Campus, Chandigarh 140507, Punjab, India)

  • Rakesh Kumar Sharma

    (School of Humanities and Social Sciences, Thapar Institute of Engineering and Technology, Bhadson Road, Patiala 147004, Punjab, India)

Abstract

Taxation is a powerful tool to achieve sustainable development goals (SDG) as tax policies help strengthen economic growth and improve revenue capacity. So, after tax reform, it is vital to analyze their impact on the performance of enterprises. Keeping in mind the SDG, the present study was conducted in India after the major tax overhaul—Goods and Service Tax (GST) on 1 July 2017, to measure the impact on Return on Equity (ROE) and Return on Investment (ROI) as they are the barometers to measure performance (DuPont Analysis). We opted for tax reform determinants, the characteristics of firms, demographic variables, and drivers from DuPont analysis to conduct the research, as all these variables can help identify the different causes of factors impacting ROI and ROE among different types of firms and demographics across countries. An econometric analysis of 546 registered SMEs (small and micro enterprises) was conducted using the regression model, structured equation modeling, and exploratory and confirmatory factor analysis to achieve the objectives. The empirical findings highlighted that a firm’s size, turnover, and DuPont analysis drivers (earnings × asset to sales × asset turnover) positively enhanced the ROI and ROE. Further, the change in the tax system after the tax reforms has enabled the detection of tax fraud and wrong invoices, reducing the missing insolvent traders and increasing the working capital flow of the firms, which in turn has augmented financial performance.

Suggested Citation

  • Neba Bhalla & Inderjit Kaur & Rakesh Kumar Sharma, 2022. "Examining the Effect of Tax Reform Determinants, Firms’ Characteristics and Demographic Factors on the Financial Performance of Small and Micro Enterprises," Sustainability, MDPI, vol. 14(14), pages 1-18, July.
    • Handle: RePEc:gam:jsusta:v:14:y:2022:i:14:p:8270-:d:856907
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    Cited by:

    1. Neba Bhalla & Rakesh Kumar Sharma & Inderjit Kaur, 2022. "Effect of Tax Knowledge and Technological Shift in Tax System on Business Performance: A PLS-SEM Analysis," Sustainability, MDPI, vol. 14(16), pages 1-18, August.
    2. Hongni Zhang & Xiangyi Xu, 2023. "Innovative Technology Method Based on Evolutionary Game Model of Enterprise Sustainable Development and CNN–GRU," Sustainability, MDPI, vol. 15(5), pages 1-17, February.
    3. Teodora Roman & Nicu Marcu & Valentina Diana Rusu & Erika Maria Doacă & Adelina Andreea Siriteanu, 2023. "Tax Payment and the Performance of SMEs: A Longitudinal Analysis on EU Countries," Sustainability, MDPI, vol. 15(2), pages 1-15, January.

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