Determinants of Profitability of the Agricultural Sector of Vojvodina: The Role of Corporate Income Tax

Abstract

Due to considerable share in total employment and foreign trade exchange, agriculture represents an important sector of the Serbian economy. It is, therefore, necessary to continuously analyze the financial performance of agricultural companies and key determinants of financial performance. The objectives of this paper are to analyze the corporate income tax burden of agricultural companies in Vojvodina, as well as its impact on company profitability. Statistical tests showed that effective corporate income tax rates (ETRs) in agricultural companies are significantly lower than the statutory corporate income tax rate. Furthermore, nearly 69% of observations have both a current ETR and cash ETR of 0%, which indicates that agriculture is an industry with an exceptionally low corporate income tax burden. Panel regression showed that agricultural companies with lower ETRs are more profitable than companies with higher ETRs. Results of the analysis are not sensitive to changes in corporate income tax burden and profitability proxies.

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