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The Impact of Tax Burden Payment Indicators and Ease of Tax Compliance on the Development of Clean and Digital Energy Startups

Journal: Financial Markets, Institutions and Risks (FMIR) (Vol.8, No. 4)

Publication Date:

Authors : ; ; ;

Page : 204-225

Keywords : taxation; compliance; clean energy; digital energy; startups; innovation; sustainability;

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Abstract

This study explores the influence of tax burden indicators and ease of tax compliance on the development of clean and digital energy startups, critical players in the global transition to sustainable energy systems. Recognizing the importance of innovation-driven enterprises in achieving climate goals, this research investigates how taxation policies and compliance processes impact the growth and success of startups leveraging renewable and digital energy technologies. The study utilizes a comprehensive dataset, spanning 2000–2021, derived from the International Energy Agency (IEA) and the World Bank. It examines key metrics such as total tax rates, compliance time, post-filing indices, and R&D tax incentives across developed and developing countries. A combination of Ordinary Least Squares (OLS), Fixed Effects (FE), and Random Effects (RE) regression models was employed to analyse the relationships between tax-related variables and startup activity, with the inclusion of lagged variables to assess delayed policy impacts. The results reveal nuanced dynamics between tax burdens and startup development. Contrary to traditional assumptions, higher overall tax rates on income and profits showed a positive correlation with startup growth, suggesting that revenues from such taxes may fund beneficial incentives like R&D grants. However, indirect taxes, such as sales and payroll taxes, alongside higher tax-to-GDP ratios, negatively influenced startup proliferation by diverting resources away from innovation and scaling efforts. Simplified tax compliance processes emerged as a significant driver of startup growth. Improvements in post-filing indices and reductions in compliance time correlated with increased startup activity, underscoring the administrative burdens that disproportionately affect resource-constrained enterprises. Furthermore, digital tax systems, including e-filing and automated reporting, proved particularly advantageous for clean and digital energy startups, aligning with their technological expertise and enabling resource reallocation toward innovation. The study highlights disparities between developed and developing economies. While advanced economies benefit from streamlined compliance systems and robust tax incentives, startups in emerging markets face fragmented tax frameworks, lengthy processes, and limited access to incentives, restricting their global competitiveness. These findings have important policy implications. Governments should implement digital tax systems to ease compliance, provide targeted incentives to foster clean energy innovation, and ensure tax policies are designed to support entrepreneurial ecosystems. Policymakers in developing regions must address systemic inefficiencies to level the playing field and unlock the potential of startups in driving sustainable development and energy transitions globally. This research offers valuable insights into the interplay of taxation, innovation, and clean energy entrepreneurship, guiding policymakers in creating conducive environments for sustainable economic growth and technological advancement.

Last modified: 2025-01-15 21:42:43