The goal of this research is to analyze SMEs' effective tax rate and its horizontal equity and verify that firm specific determinants could have a vital effect on effective tax rate in statistical model by using 2003 SSBF data from the viewpoint of SMEs instead of large businesses.
According to survey regression, The results are as followed. First, micro business has positive impact on the effective tax rate which may explain that tax system could be regressive and business environment of micro enterprise might be unfavorable comparing to small and medium businesses in reality. Second, retail and wholesale industry and manufacturing industry have negative relation with effective tax rate which proves that industry policy remains in U.S. SMEs. Addition to favorable effective tax rate, horizontal equity of manufacturing industry is the smallest in the result meaning higher survival possibility in manufacturing industry. Finally, Education effect on effective tax rate elucidates that college graduate of CEO increases the level of effective tax rate contrary to the tax evasion, rooted in education level in regression model.
With these statistical results, financial crisis requires Korean government to furnish enormous amount of liquidity into banks as SME relieving policy fund which definitely charge us governmental process cost. Consequently, tax support system should be another method to alleviate liquidity shortage in SMEs in order to minimize moral hazard in banking system and to avoid complicated governmental processes by providing flexible tax rate considering the actual burden and horizontal equity based on the size and industry.