Adjustment for incentive law exemption The profit—for the purposes of this assessment is the net taxable
income—is defined as usual: income minus expenses. In addition
both positive (increases net taxable income) and negative (decreases
net taxable income) adjustments, allowed for in the Tax Code, are
included. Negative adjustments include “incentives law exemption”
(ILE)—the amount of tax relief to which a company is entitled if it is
beneficiary of a TIP, including tourism.
The ILE posts an inconsistency for comparing the net income
between both companies, since without adjusting for ILE, ROA values
are distorted. In the sample, a net profit variable that neutralizes the
ILE effect is included. This allows to assess the “true market” profit of
a given firm.
Date of TIPT resolution A final important element from a methodological standpoint is when
firms began to enjoy tax benefits. This distinction is necessary to be able
to segregate investment patterns between TIPT and non-TIPT firms.
In the sample there is the possibility that firms started out as
non-TIPT firms and then became classified under the TIPT. This event
needs to be isolated in the sample, in order to identify any changes in
the investment pattern, benefits and ROA of firms once they changed
their status.
To this end, firms were marked as belonging to the TIPT three
years prior to their CONFOTUR resolution granting the incentives.
This is so because the law enables a three year period for firms to make
their investment before obtaining the final resolution that will allow
them to be exempt from income tax, among other taxes.
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Appendices
During this investment period, the firm is subject to income
tax, but is exempt from several other taxes that affect the investment
process: VAT and tariffs on inputs and materials, real estate transfer
taxes, etc. Most importantly, it is during this period where firms
presumably make the bulk of the investment, and thus it is necessary
to capture this effect.
