Tax perceived as barrier to innovation
International Journal of Recent Technology and Engineering
Blue Eyes Intelligence Engineering & Sciences Publication
School of Business and Law
Ministry of Higher Education of Malaysia
In spurring high level of economic development, tax as one of the fiscal policy instruments is vital in generating more revenues for the government. However, higher tax revenues mean the people and companies have to pay more out of their income thus create austerity in productivity. The present study examines the correlation between tax and newly invented products or services among firms in Malaysia. The study employs binomial logit model by using the World Bank data of 919 firms in 2015. The result shows that the correlation estimate between tax and innovation is weak, but the controlling variables such as residency, firm size and region strengthened the coefficients between the variables. There is a high concentration of residence firms not to invent new product or service when they perceived the tax as obstacle to their current operations. This study also finds a significant role of firm size on this phenomenon whereby small firms are hardly involve in innovation activities as compared to medium firms. The study thereby offers a new insight for policy formulation to consider the innovation activities in future planning.