Impact Of Direct And Indirect Taxes On Sustainability Of Pakistan Stock Exchange Listed Firms.

Abstract

This study examines the impact of direct and indirect taxes on sustainability of Pakistan Stock Exchange (PSX) listed forms in Pakistan, the sustainability, profitability, and performance of Pakistan Stock Exchange-listed firms from 2019 to 2023. Utilizing a panel least squares regression model with 534 listed firms in 37 segments of industries with 2670 balanced observations, the research evaluates key performance indicators: equity, return on assets (ROA), and employment. The analysis finds that direct taxes have a severe adverse effect on firm equity, with a coefficient of -23,736.47, indicating a substantial reduction in equity. Indirect taxes positively influence equity (coefficient: 1,498.504), while sales taxes negatively impact equity with a coefficient of -0.641032, reflecting decreased profitability. For profitability, direct taxes on assets show a significant negative coefficient of -5.487701, underscoring their detrimental effect on ROA. The informal economy exhibits a negative coefficient of -0.153374 on ROA, suggesting market inefficiencies and competitive disadvantages. Conversely, informal GDP positively impacts ROA with a coefficient of 0.000169. Employment analysis reveals that the ratio of employment to equity has a positive effect (coefficient: 9,993.399), while indirect taxes relative to equity negatively affect employment (coefficient: -1,093.709). The high R-squared values of 82% for equity, 98.51% for ROA and 96.99% for employment underscore the model’s explanatory power. Policy recommendations include targeted tax incentives for key sectors, streamlining tax compliance to enhance efficiency, promoting the formalization of the informal economy, and implementing gradual tax adjustments to support firm sustainability and performance. These measures are essential to mitigate adverse tax impacts and foster economic stability. JEL CLASSIFICATION: O1, O2