Journal of Tax Reform
Do Capital Adequacy Ratios of the Banking System Affect the Taxation Performance: Novel Evidence from BRICS Nations
Ahmed Samour, Ilker Yilmaz
Dhofar University, Salalah, Sultanate of Oman
Abstract
The empirical studies on the potential interconnection between tax and financial growth have gathered a great deal of attention from scholars and policymakers. However, the impact of regulatory capital on taxation performance has been ignored. In this context, the study aims to provide new discussion by assessing the linkage between capital adequacy and taxation revenues in the case of Brazil, Russia, India, China, and South Africa (BRICS) economies. We aim to find out the impact of capital adequacy ratios on the taxation performance of BRICS countries. We hypothesize that a stronger banking system is positively associated with higher taxation performance. A sound banking and financial system promotes economic development and growth, also resulting in the firms’ profitability and ultimately increasing the government’s tax revenues. Using the advanced quantile panel technique of the Methods of Moments Quantile Method (MM-QR), the study showed that capital adequacy positively influences taxation sustainability in the BRICS economies. Besides, the findings illustrated that economic growth positively increases taxation revenues in the BRICS economies. The study suggests that regulatory capital policies can positively influence financial stability by mitigating bank risk-taking incentives and offering a buffer against losses. Hence, an increase in capital adequacy will promote financial stability, which in turn leads to increased taxation revenues. However, higher capital adequacy may increase the franchise value of core banks’ activities, which in turn allows banks to attract new investments and funds that can be used for investment in risky market-based activities. Based on the empirical analysis, the study concludes that policymakers should focus more on capital regulation and sustainable taxation revenues.
Keywords
capital adequacy ratio, stronger banking system, taxation, economic development, BRICS
JEL classification
G28, H21References
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About Authors
Ahmed Samour – Ph.D, Assistant Professor of Department of Accounting, College of Commerce and Business Administration, Dhofar University, Salalah, Sultanate of Oman (Saadah Region, Postal Code: 211, Salalah, Oman); ORCID: https://orcid.org/0000-0003-0098-6925; e-mail: asamour@du.edu.om
Ilker Yilmaz – Ph.D, Assistant Professor of Department of Accounting, College of Commerce and Business Administration, Dhofar University, Salalah, Sultanate of Oman (Saadah Region, Postal Code: 211, Salalah, Oman); ORCID: https://orcid.org/0000-0001-8501-9664; e-mail: iyilmaz@du.edu.om
For citation
Samour A., Yilmaz I. Do Capital Adequacy Ratios of the Banking System Affect the Taxation Performance: Novel Evidence from BRICS Nations. Journal of Tax Reform. 2024;10(1):122–133. doi.org/10.15826/jtr.2024.10.1.160
Article info
Received September 21, 2023; Revised November 29, 2023; Accepted December 8, 2023
DOI: https://doi.org/10.15826/jtr.2024.10.1.160
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