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What happens when Islamic capital markets move away from tax neutrality – a look at Oman & Saudi Arabia

This article evaluates how tax reforms affect stock prices of local and foreign firms in Oman and Saudi Arabia. Both countries introduced corporate tax on foreign firms, exempting local firms from corporate tax, when they moved away from a pre-existing Islamic tax neutrality policy. These reforms we...

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Main Authors: Selamat, A., Syed Mohamed, Mohamed Ariff, Mohamad, Shamsher
Format: Article
Language:English
Published: Universiti Putra Malaysia Press 2015
Online Access:http://psasir.upm.edu.my/id/eprint/46895/1/18%20JSSH-1207-2014.pdf
http://psasir.upm.edu.my/id/eprint/46895/
http://www.pertanika.upm.edu.my/pjssh/browse/regular-issue?decade=2020&year=2015&journal=JSSH-23-1-3
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spelling my.upm.eprints.468952022-05-25T03:37:31Z http://psasir.upm.edu.my/id/eprint/46895/ What happens when Islamic capital markets move away from tax neutrality – a look at Oman & Saudi Arabia Selamat, A. Syed Mohamed, Mohamed Ariff Mohamad, Shamsher This article evaluates how tax reforms affect stock prices of local and foreign firms in Oman and Saudi Arabia. Both countries introduced corporate tax on foreign firms, exempting local firms from corporate tax, when they moved away from a pre-existing Islamic tax neutrality policy. These reforms were implemented in 2009 in Oman and in 2004 in Saudi Arabia. These tax reform events – applying to foreign firms and not applying to local firms in the same markets – offer ideal experimental situations in two economies to test the taxation theories on how stock prices must react. We find that the results support the ModiglianiMiller and Elton-Gruber tax theories in two ways. Firstly, foreign firms that had their taxes reduced experienced stock price increases. Secondly, local firms not subjected to tax or tax reduction showed no visible tax effect. These are theory-consistent findings in the unique tax environments in these two Islamic countries, which moved away from tax neutrality, enabling us to obtain very clear evidence on modern theories of taxation. In our view, this evidence is significantly important addition to the literature on tax and taxation and for those contemplating a move away from Islamic tax neutrality. Universiti Putra Malaysia Press 2015 Article PeerReviewed text en http://psasir.upm.edu.my/id/eprint/46895/1/18%20JSSH-1207-2014.pdf Selamat, A. and Syed Mohamed, Mohamed Ariff and Mohamad, Shamsher (2015) What happens when Islamic capital markets move away from tax neutrality – a look at Oman & Saudi Arabia. Pertanika Journal of Social Sciences and Humanities, 23 (1). pp. 253-266. ISSN 0128-7702; ESSN: 2231-8534 http://www.pertanika.upm.edu.my/pjssh/browse/regular-issue?decade=2020&year=2015&journal=JSSH-23-1-3
institution Universiti Putra Malaysia
building UPM Library
collection Institutional Repository
continent Asia
country Malaysia
content_provider Universiti Putra Malaysia
content_source UPM Institutional Repository
url_provider http://psasir.upm.edu.my/
language English
description This article evaluates how tax reforms affect stock prices of local and foreign firms in Oman and Saudi Arabia. Both countries introduced corporate tax on foreign firms, exempting local firms from corporate tax, when they moved away from a pre-existing Islamic tax neutrality policy. These reforms were implemented in 2009 in Oman and in 2004 in Saudi Arabia. These tax reform events – applying to foreign firms and not applying to local firms in the same markets – offer ideal experimental situations in two economies to test the taxation theories on how stock prices must react. We find that the results support the ModiglianiMiller and Elton-Gruber tax theories in two ways. Firstly, foreign firms that had their taxes reduced experienced stock price increases. Secondly, local firms not subjected to tax or tax reduction showed no visible tax effect. These are theory-consistent findings in the unique tax environments in these two Islamic countries, which moved away from tax neutrality, enabling us to obtain very clear evidence on modern theories of taxation. In our view, this evidence is significantly important addition to the literature on tax and taxation and for those contemplating a move away from Islamic tax neutrality.
format Article
author Selamat, A.
Syed Mohamed, Mohamed Ariff
Mohamad, Shamsher
spellingShingle Selamat, A.
Syed Mohamed, Mohamed Ariff
Mohamad, Shamsher
What happens when Islamic capital markets move away from tax neutrality – a look at Oman & Saudi Arabia
author_facet Selamat, A.
Syed Mohamed, Mohamed Ariff
Mohamad, Shamsher
author_sort Selamat, A.
title What happens when Islamic capital markets move away from tax neutrality – a look at Oman & Saudi Arabia
title_short What happens when Islamic capital markets move away from tax neutrality – a look at Oman & Saudi Arabia
title_full What happens when Islamic capital markets move away from tax neutrality – a look at Oman & Saudi Arabia
title_fullStr What happens when Islamic capital markets move away from tax neutrality – a look at Oman & Saudi Arabia
title_full_unstemmed What happens when Islamic capital markets move away from tax neutrality – a look at Oman & Saudi Arabia
title_sort what happens when islamic capital markets move away from tax neutrality – a look at oman & saudi arabia
publisher Universiti Putra Malaysia Press
publishDate 2015
url http://psasir.upm.edu.my/id/eprint/46895/1/18%20JSSH-1207-2014.pdf
http://psasir.upm.edu.my/id/eprint/46895/
http://www.pertanika.upm.edu.my/pjssh/browse/regular-issue?decade=2020&year=2015&journal=JSSH-23-1-3
_version_ 1734301571217358848
score 13.211869

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