Corporate Digitalization and Tax Burden Disparities

【Authors】

LI Jianjun & ZHAO Wei

【WorkUnit】

LI Jianjun (Southwestern University of Finance and Economics, 611130)；ZHAO Wei (Sichuan Vocational College of Finance and Economics, 610101)

【Abstract】

A fair distribution of tax burdens is essential for a modern tax system, a sound business environment, a unified national market, and the high-quality development of the digital economy. As the digital economy expands, the digital transformation reshapes firms’ operations, management models, and tax-related behaviors. While it improves efficiency and enables firms to benefit from tax incentives, it may also increase the complexity and opacity of tax-related information, creating room for strategic tax avoidance. Since firms differ in their digital capabilities and institutional adaptability, the tax burden reductions thus incurred may vary accordingly, thereby widening inter-firm tax burden disparities and challenging horizontal tax equity.
Using data on Chinese listed firms from 2011 to 2022, this study systematically examines the impact of corporate digital transformation on inter-firm tax burden disparities and its underlying mechanisms. Our findings show that corporate digital transformation widens tax burden disparities across firms. Mechanism analysis indicates that digital transformation lowers firms’ effective corporate income tax rates through the “expected effect” of institutional tax reductions and the “unexpected effect” of strategic tax avoidance. However, differences in the depth of digital transformation and firms’ tax reduction capacities lead to uneven tax reductions and greater inter-firm tax burden deviations. Heterogeneity analysis shows that this effect is more pronounced among smaller firms, firms with more tax haven subsidiaries, firms with weaker internal controls, and firms with insufficient external oversight. Further analysis suggests that digital tax administration can mitigate such disparities, whereas corporate digitalization expands the tax base without generating a corresponding increase in tax revenue.
This paper makes three main contributions. First, it extends the literature on the tax effects of corporate digital transformation from the perspective of inter-firm tax burden disparities. Second, it expands research on the non-institutional determinants of such disparities. Specifically, this paper reveals how corporate digital transformation, as a micro-level business activity, exacerbates tax burden disparities through uneven tax burden reductions, thereby providing practical evidence for understanding how tax burden disparities occur in the digital economy. Third, this paper offers policy implications for building a modern tax system compatible with the digital economy and provides a new research perspective for coordinating the goals of tax equity and efficiency.
This paper proposes the following policy recommendations. First, the tax system for the digital economy should be improved while adhering to the principle of horizontal tax equity. Second, digital tax administration should be advanced to enhance the precision and effectiveness of tax regulation. Third, external regulation and public supervision should be strengthened to build a collaborative governance mechanism. 

JEL: D21, H21, H71

【KeyWords】

Digital Transformation, Tax Burden Disparities, Tax Benefits, Tax Avoidance