TAX STRATEGIES AND FINANCIAL PERFORMANCE ANALYZE THE RELATIONSHIP BETWEEN TAX PLANNING STRATEGIES AND THE OVERALL FINANCIAL PERFORMANCE OF FIRMS IN PAKISTAN

Abstract

Background The intricate interaction between tax planning policies and corporate financial performance has become a profound area to explore for developing nations like Pakistan, due to the fact that such nations struggle to ensure the fiscal discipline and to maintain the regulatory enforcement and obedience (Ahmed & Malik, 2012). A number of tax tactics, these including the reduction of ETRs, the use of deferred tax assets, and book-tax differences, have been used by companies in recent years for improving profitability and increasing shareholder value. Aim The purpose of this study is to investigate the association among tax planning strategies and financial perform measures, such as Return on Assets (ROA), Return on Equity (ROE), and Earnings Per Share (EPS) of listed non-financial firms in Pakistan. Method In the present study, a secondary quantitative approach was used and data was collected from Pakistan Stock Exchange from 2018 to 2023. The effects of Effective Tax Rate (ETR), Cash Effective Tax Rate (CETR), Book-Tax Differences (BTD), and Deferred Tax Assets on the firm performance, firm size and leverage were examined using multiple regressions. Findings The findings present a significant negative impact of ETR, CETR, and BTD on all financial return variables and positive effect of DTA. Second, company size has a positive association with both firm's performance and liquidity management, and leverage is negatively related. Conclusion The study justifies firm financial performance through strategic tax planning in the corporate sector of Pakistan, which implies that firms that are planned in a structured manner, maintaining compliance would enhance profitability and shareholders confidence. These results add support for the consideration of tax planning as part of overall financial strategy in developing countries.