The effect of tax incentives practices on the sustainability of micro, small and medium enterprises in Ethiopia during the outbreak of corona virus pandemic

Abstract

Abstract Purpose This study was aimed to identify the effect of tax incentive practices on the sustainability of MSMEs during an outbreak of coronavirus pandemic in Ethiopia. Design/methodology/approach To achieve this objective, the researcher has employed a quantitative research approach with an explanatory research design in which six hypotheses have been tested. The primary data were collected from 300 MSMEs owners/operators using structured questionnaires. A multiple regression model was employed to study the effect of tax incentives parameters on the sustainability of MSMEs. Findings According to the regression analysis, this paper revealed that tax holiday, tax allowance, reduction in the tax rate, accelerated depreciation, loss carry forward, and tax exemption have a positive and statistically significant effect on the sustainability of the MSMEs. Research limitations The current study was geographically focused on Ethiopia by considering the MSMEs sector. The subject wise was focused on the effect of the tax incentives on the sustainability of MSMEs. The primary data were limited to the year 2020. It might be improved in the future if other researchers incorporate large firms in the country and use secondary data for the analysis of multiple years. Also, future researchers will improve the same study by considering both monetary and non-monetary incentives as study variables. Practical implications To survive during the COVID-19 pandemic, MSMEs need support from the government in the form of tax incentives. The tax incentives play a great role in enhancing the growth and the sustainability of MSMEs as well as the economy as a whole. So the owners of MSMEs have to ask the government to obtain necessary support in the form of monetary and non-monetary incentives to be sustainable in economic activity. Also, the findings and recommendations of the current study might serve as an ingredient and be informative to the policymakers on the MSMEs sector. The governments have to continue to shape tax incentives policies to support the MSMEs’ sustainability by providing tax and non-tax incentives. Originality/value This study contributes to empirical evidence about the effect of tax incentives practices on the sustainability of MSMEs during the outbreak of COVID-19 in Ethiopia by considering six tax incentive practices in terms of tax holiday, tax allowance, reduction in the tax rate, accelerated depreciation, loss carried forward, and tax exemption.