Value-added-tax rate increases: A comparative study using difference-in-difference with an ARIMA modeling approach

Abstract

Collecting and managing taxes is a critical keystone to protecting a country’s financial intensity and developing a country’s tax system, where value-added tax (VAT) has proven to be a nurturing and steady foundation of income for governments. VAT is a primary source of financial gain in developing nations, which differs from economic income in developed nations, where economic income is primarily derived from tax income. This study examines the influence of the new VAT on non-financial Saudi-listed companies. We compared and examined the impact of the newly introduced 15% VAT in various non-financial sectors. Using charts, tables, appropriate variance analysis, and ARIMA model in the Difference in Difference approach. Regarding data, we targeted 2019 before the new VAT, the discovery of COVID-19, and 2020 after the new VAT and during the COVID-19 pandemic. Results show that a sharp increase in VAT (with other unmeasured variables in this study) has a significant positive/negative impact on inter-industry volatility in corporate financial reporting metrics and was even more dramatic with the COVID-19 disaster. The proposed 10% VAT increase has caused significant fluctuations in companies’ metrics, for example, a decrease in average profits—2.16%, an escalation in more inactive companies, and a higher probability of bankruptcy among companies. Such an outcome would undoubtedly affect unemployment and possibly lead to a reduction in tax revenues in the long run. The consequences of an unexpected VAT increase raise the question of whether they accurately reflect the natural tax system in Saudi Arabia. Therefore, the Saudi government may consider the practical implications of outcomes before taking the next step in interventions in non-financial sectors.

Evaluating the Influence of Value-Added Tax Policy Changes on the Liquidity and Performance of Banking Sector Stocks: An Event Study Analysis

“…Further, the relationship between VAT and stock market dynamics, particularly in the context of consumer demand and sector-specific performances, underscores the nuanced effects of VAT on economic factors. A study by Mgammal et al (2023) [33] specifically examined the impact of VAT implementation on stock prices in the Saudi market, revealing a significant negative impact on stock prices post-implementation, especially for firms unable to pass the VAT burden to consumers.…”

Research on Financial Risk Intelligent Monitoring and Early Warning Model Based on LSTM, Transformer, and Deep Learning

“…However, these systems often struggle to cope with complex market conditions and emerging risks. Traditional time series analysis methods, such as the ARIMA (AutoRegressive Integrated Moving Average) model introduced in (Mgammal, Al-Matari & Alruwaili, 2023), aim to capture trends, seasonality, and randomness in time series data. It combines an AutoRegressive (AR) model to describe the correlation between the current value and past values and a Moving Average (MA) model to describe the correlation between the current value and white noise errors.…”