THE IMPACT OF TAX CHANGES ON THE LIQUIDITY OF CONSTRUCTION COMPANIES IN THE DEVELOPING MARKET

Abstract

Studies to date show that taxes have a very high impact on company liquidity (Law & Yuen, 2019; Drogalas, Lazos, Koutoupis, & Pazarskis, 2019). The International Monetary Fund (IMF, 2022) shows the need to release tax procedures and their monitoring in the Republic of Kosovo. Kosovo law is such that it disables the timely liquidity of construction companies which has an impact on the reduction of construction companies’ projects. The main purpose of this paper is to describe the effects of changing the tax laws, namely the law on corporate income tax, personal income, and value-added tax (VAT) on the liquidity of construction companies in Kosovo. For this paper, we employ survey data collected from accountants and financial managers who through the questionnaire have reflected on the need to change the law on personal income, corporate income, and VAT. The models for measuring latent variables are structural equation models 1 and 2 (SEM1 and SEM2) and the ordinary least squares (OLS) models. The empirical results of the SEM1 and first OLS model (OLS1) reveal that the current law on corporate income tax and the law on personal income tax have negative effects on the liquidity of construction companies in the Republic of Kosovo and the empirical results from the SEM2 and second OLS model (OLS2) show that the current law on value-added tax has significant negative effects on the liquidity of construction companies in the Republic of Kosovo.