REGISTRO DOI: 10.69849/revistaft/ar10202212011055
Ayrton José Netto
Abstract
The studies reviewed underscore the significant impact of fiscal policies and government incentives on the sustainability and financial performance of small and medium-sized enterprises (SMEs). Tax deductions and targeted incentives play a crucial role in alleviating financial pressures, enabling better resource management, and fostering growth and competitiveness. The research by Picas et al. (2021) reveals how various fiscal incentives and government support influence the profitability of Portuguese SMEs, with findings indicating that while tax incentives positively affect profitability, some government incentives do not have substantial impacts. Bhalla, Kaur, and Sharma (2022) explore the effects of India’s Goods and Services Tax (GST) reform, demonstrating improvements in financial performance through reduced borrowing costs and better working capital flow. Wang, Shen, and Tang (2021) analyze China’s VAT reform, highlighting its role in enhancing firms’ financing capabilities by decreasing borrowing costs and promoting credit availability. Zhao, Li, and Li (2022) focus on the effects of environmental taxes on high-tech enterprises, finding that these taxes drive green innovation but have varied impacts depending on firm ownership type. Finally, Bartolacci, Caputo, and Soverchia (2019) provide a bibliometric analysis of research trends in SME sustainability and financial performance, identifying key research themes such as innovation, corporate social responsibility, and green management. Collectively, these studies emphasize the need for targeted fiscal policies and effective tax management to support sustainable business development. They offer valuable insights for policymakers and business leaders to craft strategies that enhance SME growth and innovation amidst financial challenges.
Keywords: Fiscal policies; Government incentives; SME sustainability; Tax deductions; Financial performance.
Small businesses are essential to the economy but often face substantial financial hurdles due to high operational costs and limited resources. One effective strategy to alleviate these financial pressures is through tax deductions. These deductions enable businesses to lower their tax liabilities, thereby improving their financial stability. By understanding and utilizing these deductions, small businesses can significantly enhance their financial health.
Tax deductions, including those for operational expenses, technology investments, and employee-related costs, help reduce taxable income and free up resources for other business needs. For example, costs related to equipment maintenance, supply purchases, and specific salaries can be deducted, leading to a reduced tax burden. These savings can then be reinvested in growth areas such as marketing, innovation, or expansion, enhancing the company’s competitiveness and growth prospects.
Governments also offer targeted incentives to support small businesses, such as tax credits for research and development or sustainable practices. These incentives can lower operational costs and support initiatives that boost sustainability and efficiency. To fully benefit from these opportunities, small business owners need to stay informed about available deductions and maintain effective tax management.
Implementing a strong accounting system and consulting with accounting professionals can help ensure all eligible deductions are utilized. Additionally, keeping up with tax legislation changes and leveraging government programs can optimize tax benefits and reduce costs.
In a study by Picas et al. (2021), the impact of fiscal and financial incentives on Portuguese SMEs between 2010 and 2019 was analyzed. The research utilized panel data from various tax grants and subsidies to assess how these incentives affected SME profitability. Findings revealed that while tax incentives positively influenced profitability, government incentives had limited overall impact. Specifically, QREN financial incentives improved Return on Assets (ROA) but negatively affected Return on Equity (ROE), indicating varied effects on business sustainability. This study provides valuable insights for managers and policymakers to identify measures that enhance SME value and guide government selection of effective incentives.
Bhalla, Kaur, and Sharma (2022) investigated the effects of the Goods and Services Tax (GST) reform in India, implemented on July 1, 2017, on business performance. The study examined how this tax overhaul influenced Return on Equity (ROE) and Return on Investment (ROI) using econometric methods and data from 546 SMEs. Results showed that firm size, turnover, and specific financial drivers positively affected ROI and ROE. The GST reforms also improved the detection of tax fraud and invoicing errors, thereby enhancing firms’ financial performance.
Wang, Shen, and Tang (2021) explored the impact of China’s VAT reform (2004-2009) on alleviating financial constraints for firms. Using a quasi-experimental approach and ASIF data, the study found that VAT reform significantly improved firms’ ability to secure financing by reducing borrowing costs and fostering commercial credit. The findings highlighted the critical role of tax deductions in easing financial constraints, particularly in developing countries with limited credit access.
Zhao, Li, and Li (2022) examined how environmental taxes influence the sustainable performance of high-tech enterprises in China. Their research, based on data from 263 high-tech firms, revealed that environmental taxes positively affect green innovation. However, the impact varies between state-owned and private enterprises, with private firms experiencing an inverted U-shaped effect on financial and environmental-social performance, while state-owned firms showed a negative impact on financial performance. The study suggests that tailored tax policies are needed to address the diverse needs of different enterprises and promote sustainable development.
Finally, Bartolacci, Caputo, and Soverchia (2019) conducted a bibliometric analysis of sustainability and financial performance research in SMEs. Analyzing a 20-year dataset from the Web of Science, the study identified key research themes, including innovation and entrepreneurship’s impact on sustainability, corporate social responsibility, and green management. The research highlights major insights and suggests future directions to further explore these areas.
In conclusion, the analyses and studies presented highlight the critical role of fiscal policies and government incentives in supporting the sustainability and financial performance of small and medium-sized enterprises (SMEs). Tax deductions and specific incentives can significantly alleviate the financial pressures faced by businesses, facilitating better resource management and driving growth and competitiveness. The research conducted by Picas et al. (2021) and the study by Bhalla, Kaur, and Sharma (2022) illustrate how various types of incentives and tax reforms can influence SME profitability and performance. Meanwhile, the work of Wang, Shen, and Tang (2021) and Zhao, Li, and Li (2022) underscore the importance of tax reforms and environmental taxes in enhancing financing capabilities and promoting sustainable innovation. Additionally, the bibliometric analysis by Bartolacci, Caputo, and Soverchia (2019) provides a comprehensive overview of research trends and themes related to sustainability and financial performance in SMEs, identifying key areas for future exploration. These studies emphasize the necessity for well-targeted fiscal policies and effective tax management to foster the sustainable development of businesses, especially in challenging and variable contexts. A deep understanding of these dynamics can better guide managers and policymakers in creating environments that are more conducive to the growth and innovation of SMEs. The insights gained from these studies offer valuable guidance for designing more effective policies and strategies that can support SMEs in navigating financial challenges and achieving long-term success.
References
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