Management : Journal of Contemporary Management Issues (Jan 2016)
VAT rate change and its impact on liquidity
Abstract
In today's globalized world which is characterized by very quick changes, the need for cash is greater than ever before. The company's liquidity has become one of the most important categories in business. Tax changes that occur in the Republic of Croatia practically from one tax period to another have an impact on the overall business including its liquidity. Therefore, it has become increasingly important for businesses to maintain an adequate level of liquidity and to continuously analyse and monitor it through certain financial ratios. The paper demonstrates a potential impact of the general VAT rate change on liquidity. Companies are divided into two groups. The first group consists of companies that in the years after tax rate changes continue with normal business activity. The second group comprises companies that have been faced with business discontinuity in the years following the change. Possible differences between the liquidity ratios of the companies that have gone bankrupt and companies that have not gone bankrupt after the general VAT rate increase from 22% to 23% are explored. In compliance with the time scope of tax change that occur in one tax accounting period, liquidity is also analysed in the year preceding the year in which the VAT rate was changed.
