Mitigating The Marginal Decreasing Effect Of Additional Deduction Reinforcement

The report of the 20 th National Congress of the Communist Party of China points out that "Innovation is the primary driving force to open up new areas and new tracks,and constantly shape new advantages for development".General Secretary Xi Jinping also emphasizes that we should be motivated by reform and innovation,and adhere to the strategic position of innovation in the modernization.Based on the overall situation of our country in 100 years,in an effort to realize transformation and spanning,high-quality development and connotative growth,it is key to give full play to the driving role of scientific and technological innovation.In order to promote enterprise innovation and development,the Fifth Plenary Session of the 19 th Central Committee once again clarifies the strategic position of “scientific and technological innovation”,and stresses the vigorous implementation of the additional deduction reinforcement policy for R&D expenses,tax incentives for high-tech enterprises and other inclusive policies.At the executive meeting of The State Council presided over by Li Keqiang in September 2022,The State Council adopted a tax reduction policy to support enterprise innovation in stages.For high-tech enterprises purchasing equipment in the fourth quarter of 2022,one-time full tax deduction and 100% additional deduction will be allowed.Starting from the fourth quarter of 2022,this policy will be extended to all existing industries.We will encourage the upgrading of equipment,and encourage enterprises to increase investment to enhance innovation capacity.As an important policy tool to encourage enterprises to increase innovation investment,China began to try out the policy of 50% additional deduction for R&D expenses in state-owned and collective industrial enterprises in 1996.It was extended to all kinds of enterprises in 2006,and then written into the new enterprise Income Tax Law and implementation regulations of 2008.In order to further encourage medium-size and small enterprises(MSEs)to increase their investment in innovation,MSEs based on science and technology will enjoy an additional tax deduction of up to75% from 2017,and this policy will be extended to all enterprises from 2018 until December 31,2020.In 2021,manufacturing companies will implement 100%additional deduction ratio for R&D expenses,and the additional deduction policy will continue to expand in scope and increase in proportion.So,can increasing incentives for additional deductions lead to sustainable growth in innovation investment? What are the main environmental factors affecting the effect and influence of this strengthening policy? A clear study of these issues is of great significance for the government to effectively grasp the development trend of the R&D expense deduction policy,and for enterprises to make full use of the additional deduction policy according to their internal and external environment,so as to promote the innovation and development of enterprises more effectively.Therefore,this paper selects A-share listed companies in Shanghai and Shenzhen from 2008 to 2020 as the research samples,uses the difference-in-difference method to empirically-test the relationship between the additional deduction reinforcement policy and the growth of enterprise innovation input,and test the moderating effect of income increase,cost control,other available tax incentives and management quality on the relationship between the additional deduction reinforcement policy and the growth of enterprise innovation input from the perspective of the internal and external environmental factors affecting the availability of additional deduction tax incentives,in order to evaluate the effect of the additional deduction reinforcement policy objectively,and reveal the mechanism affecting the additional deduction reinforcement policy and to provide policy suggestions for enterprises to make full use of the additional deduction policy and other preferential income tax policies according to the internal and external environment factors to realize innovation-driven development.The study found that,the additional deduction reinforcement policy significantly increased the innovation input of enterprises,while the growth rate of innovation input has decreased,that is,there is a marginal decreasing effect on the growth of innovation input of enterprises and the availability of tax incentives is an important influence path.From the perspective of internal and external objective conditions of the availability of tax incentives,the increase of enterprise income can increase the availability of additional deductions,which can effectively alleviated the marginal decreasing effect of the additional deduction reinforcement policy to promote the growth of enterprise innovation input.Government subsidies will reduce the availability of additional deductions,which will intensify the marginal diminishing effect of the additional deduction reinforcement policy to strengthen the growth of enterprise innovation input.The reduction of operation and management cost,corporate governance cost and macro institutional cost can increase the availability of additional deductions,so they can effectively alleviate the diminishing marginal effect of he additional deduction reinforcement policy to promote the growth of enterprise innovation input.The Reform of value-added tax reduction can increase the availability of additional deductions,so it can effectively alleviate the diminishing marginal effect of he additional deduction reinforcement policy to strengthen the growth of enterprise innovation input,which has a synergistic effect.Income tax rate preference will reduce the availability of additional deduction preference,but will intensify the marginal diminishing effect of the additional deduction reinforcement policy to promote the growth of enterprise innovation input,without synergistic effect.From the perspective of management characteristics of the availability of tax incentives,The integrity and professional competence of management can improve the authenticity and gold content of accounting profit,and increase the availability of additional deductions,thus effectively alleviating the diminishing marginal effect.The marginal contribution of this paper mainly includes the following points:Firstly,on the basis of the existing perspectives of innovation input and innovation input efficiency,the effect of additional deduction policy and its play are further investigated from the dynamic perspective of innovation input growth rate,which enriches the evaluation dimension of innovation development effect and makes the dimension of effect evaluation of R&D expense additional deduction policy more comprehensive and scientific.Secondly,on the basis of the existing research on the effect of each additional deduction policy reform,this paper further studies the effect and influence of the additional deduction policy from the dynamic perspective of its continuous strengthening,expands the research content of the effect and influence of the additional deduction policy,deepens the evaluation of the effect of the policy from static to dynamic,and further improves the comprehensiveness and science of the effect evaluation of the policy.Thirdly,from the perspective of internal and external conditions or influencing factors that affect the availability of tax incentives,this paper reveals the formation mechanism of the relationship between the strengthening of the R&D cost addition deduction policy and the growth of enterprise innovation investment,which is different from the previous literature in terms of external environmental factors and internal characteristic factors of enterprises,considering the region,industry,marketization level,enterprise nature,equity structure,profit level to study the impact on the incentive effect of policy innovation.From the perspective of internal and external conditions or influencing factors that affect the availability of additional tax deductions,this paper examines the moderating effects of the increase income,cost control,other tax policy coordination,and management quality on the relationship between the additional deduction reinforcement policy for R&D expenses and the growth of enterprise innovation input.The determination of the moderating variables has sufficient theoretical basis and is more systematic and novel.which can be more reasonable,comprehensive and scientific to reveal the formation mechanism of the relationship between the enhancement of additional deduction and the growth of innovation input.The policy significance of this paper are as follows: Firstly,it is beneficial for the relevant government regulatory departments to optimize the top-level design,make rational use of various macro-control and national governance mechanisms to actively act,improve the institutional environment,improve the regulatory methods according to the external conditions of the relationship between the additional deduction reinforcement policy and the growth of innovation input to ensure the effective implementation of the policy of addition and deduction,and expand its positive policy effect.Secondly,it is beneficial for the corporate governance and management to improve the operation and management mechanism and methods,improve the corporate governance structure and methods,improve the operation and management efficiency and governance efficiency according to the internal conditions of the relationship between the additional deduction reinforcement policy and the growth of innovation input to give full play to the role of the additional deduction reinforcement policy in the growth of innovation investment.Thirdly,it is beneficial for enterprises to pay attention to the impact of their own quality and ability on the relationship between the additional deduction reinforcement policy and the growth of innovation input,create a corporate culture of integrity,improve the quality of management,actively obtain the tax incentives strengthened by the addition deduction policy,and better play the role of the addition deduction policy on the growth of innovation investment.Finally,it is helpful for investors to accurately judge the effect of the additional deduction reinforcement policy on the growth of innovation investment and make rational investment decisions according to the internal and external conditions that affect the availability of tax incentives and the characteristics of the management.