Assessing Tax Burden Differential Between Foreign Multinationals and Local Firms: Implications for FDI Tax Incentives

This study uses firm-level data from ASEAN5 to examine whether there are systemic differences in how reported profit is taxed between foreign multinational and comparable local firms. Using propensity score matching, it finds that the effective tax rate (ETR: tax expense divided by pre-tax profit) of foreign MNEs is 1.8 percentage point lower than that of local firms. It also shows that the preferential tax treatment is responsible for 95% of the ETR differential. Under the baseline scenario, the associated revenue loss is 2.6% of total corporate income revenue.