Does a Value-Added Tax Rate Increase Influence Company Profitability? An Empirical Study in the Saudi Stock Market

This study aims to estimate the consequences of a value-added tax ('VAT') rate increase on the profitability of the Kingdom of Saudi Arabia ('KSA') non-financial companies. Using statistical empirical approaches such as Ordinary Least Squares, Wilcoxon-signed-rank test and Difference-in-Differences, the analysis targets data before and after the VAT rate increase as well as the discovery of COVID-19. The findings support the hypothesis that after-VAT rate increase firms are, on average, less profitable. The imposed 10% VAT rate increase has caused, on average, a -2.16% decrease in profitability of Saudi firms. The results explore the notion that government debt negatively influenced firm profitability in 2020 which means that will affect Saudi companies' growth in the long term. This paper recommends implementing some VAT incentives in the tax system and conducting further studies on VAT incentives efficiency using data in the long term.