Value-added-tax rate increases: A comparative study using difference-in-difference with an ARIMA modeling approach

This study examines the impact of a 15% value-added tax (VAT) increase in Saudi Arabia on non-financial listed companies. Using a difference-in-difference approach with ARIMA modeling, the study compares financial metrics (total assets, equity, debt, income, revenue, costs, net income, cash flow components) from 2019 (before the VAT increase and COVID-19) and 2020 (after both). Results indicate a significant positive/negative impact on inter-industry volatility, with a notable decrease in average profits (-2.16%), increased inactive companies, and higher bankruptcy probability. The study concludes that the unexpected VAT increase's consequences raise questions about the tax system's effectiveness and recommends considering practical implications before future interventions.

Mahfoudh Hussein Mgammal, Ebrahim Mohammed Al-Matari, Talal Fawzi Alruwaili