أثر اختلاف طرق الاهتلاك على الأرباح والوفورات الضريبية وتشجيع الاستثمار دراسة ميدانية على الواقع الفلسطيني
The Effects of the Application of Different Methods of Depreciation on Profits, Tax Savings and Investment Promotion.
نائل علي محمود عيسى
Nael Ali Mahmoud Issa
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This study examines the effects of the different depreciation methods on the net earnings, taxsavings and investment promotion. It also investigates the main obstacles preventing theimplementation of the Accelerated Depreciation methods for taxation purposes in the PalestinianTerritories while Straight Line Depreciation method is currently in use. The study shows thatthe Straight Line method is not currently the most suitable for application ,because of theprevailing economic circumstances in the Palestinian territories. The study includes two surveys that have been designed after an extensive literature review. Thefirst survey was administered to two like-minded populations; the first population included 75public accountants (70.89% of the total population) in addition to income tax estimators of 8governorates (7.48 of the total population). The second survey was administrated to financialmanagers at corporates listed in the Palestinian Stock Market. The two surveys consisted of four main parts: The first part included a letter to the participants explaining the goal and* dimensions of the study. The second part contained a group of questions designed to provide a clear view* about the participants. The third part listed five questions concerning the practical part of the study* The fourth section consisted of five questions that are considered the “core” of* the study. Thirty five points covered all aspects of the study according to its preset objective. A number of stasistical programs, mainly SPSS, were used in analyzing the data collected by theresearcher. The results of the analysis indicated the following: Given that depreciation affects the net earnings, it is believed that using different.1 methods of calculating it would lead to a marked difference in the current market value of the fixed asset. Such difference expires over the total useful life of the asset. Moreover, depreciation is one of the factors that determine the measurement of incomeand, therefore, it affects the annual income tax payments. If one of the methods of Accelerated Depreciation is used in measuring the depreciation, it would lead to depreciating the historical cost of the asset at a faster rate than if we used the method of Straight Line Depreciation method. This concept holds true especially since the first phase of the asset’s life is the most productive. Thus, depreciation would be at its highest at this phase leading to the lowest earnings. This fact has economic ramifications in terms of investment promotion through tax savings resulting from lowering tax payments. 2.Despite the fact that the Palestinian Income Tax Law is considered the main obstacle preventing the usage of the Declining Balance Method in estimating depreciation There are other obstacles that hinder the usage of such a method ,such as the easiness of using the Straight Line Method , and the postponement of paying taxes for later years. The implementation of the Declining Balance Method, in addition to considering.3 higher deprecation rates may help in promoting investments. The practice of using the Straight Line Method, as is currently taking place, for.4 taxation purposes is not suitable for the current economic conditions in Palestine There are more suitable accounting methods for depreciation to be used. Taxable income is usually affected by the method used in evaluating the fixed assets.5 and its Current value could be used as an alternative to the Historical Value approach. The usage of the Historical Value approach for asset evaluation must be reconsidered in the light of the increasing prices which Palestine witnesses nowadays. The usage of the Declining Balance Method for taxation should not be considered to.6 be a form of tax evasion despite the fact that the Palestinian law recognizes the Straight Line Method as the only method that should be used to account for fixedasesst depeciation. .Depreciation, the factors affecting it, profit distribution policies, a corporate’s policy to7 reduce profits and realization of tax savings ,using one of the accelerated depreciation methods are all factors that influence taking the right decisions to invest in corporatesthe resarcher recommanded the following: a.the palestine lawmaker must lagislate accelerated depreciation method toreplace the straight line method because of its advantages to thecurrent Palestinian economic l situation. b. Prepairing income statements using the historical value of assets must be reconsidered due to the fact that this value does not express the real profit of a corporate. Moreover, it does not help to make a realistic assessment of its performance. c. Different taxing authorities must use the principle of Present Value, instead of the Historical Value of the fixed asset, when accounting for depreciation. d. Depreciation on fixed assets that have lost their market value must be stoped, even if they continue to serve the corporate objectives. e. Allocation of a certain percentage of a corporate’s profit as a reserve to be made in time of crisis or emergencies. f. Taking Advantage of the tax savings resulting from the application of accelerated depreciation methods, must be considered in order to promote investment in Palestine.