Research On Individual Income Tax Planning And Compensation Incentive

The enterprise individual income tax planning may affect the individual income tax burden and the employee's motivation,further affecting the incentive effect of the wage.In this paper,based on the previous research on the salary incentive effect and China's unique individual income tax system environment,I use the agency concept to explore whether and why the enterprise should conduct individual income planning;whether the individual income planning can help the enterprise improve the compensation incentive.I also argue that the external tax enforcement environment,internal corporate governance,and executive compensation etc.moderate the relationship between the tax planning and incentive.In this paper,based on the individual income tax law in China,I use the listed companies of China's main board listed as a sample to study the replationshipe between individual tax planning and the improvement of the incentive level of enterprise employees' salary performance.Based on the tax planning approach,I find in the literature and practical world conduct individual income tax planning.I use the compensation and tax data to build indicators to identify the degree of individual income tax planning made by the firm.Based on the index,I found that:(1)the listed companies on the individual income tax planning significantly improve the incentive effect of enterprise employees,affecting the performance of enterprises in the futrue;(2)in the external environment of strong tax collection,the tax planning can enhance more incentive;(3)the reform of the individual income tax in 2011 for the country reduced the individual tax pressure of the employees,thus restraining the salary incentive caused by the individual tax planning;(4)the compensation structure of CEO and CFO can influence the incentives of individual tax planning,and high equity compensation will weaken the relationship between tax planning and incentive enhance.(5)In the top management team of the company,the effect of CEO on the income tax planning incentive is more influential than the CFO's.Finally,a series of robustness tests and sensitivity tests are conducted to prove the robustness of my conclusions.In this paper,I use the Chinese specific individual income tax system and salary disclosure rules to study the tax planning at the corporate level and enrich the literature on the incentive effect of enterprise employees and tax avoidance.In addition,this paper provides direct evidence prove that the individual income tax planning can enhance the incentive effect of wage.And the results of this paper have both practical and policy implications.