The effect of tax incentives practices on the sustainability of micro, small and medium enterprises in Ethiopia during the outbreak of corona virus pandemic

Deygan o, Kanbi o O kaido A icle The e ec o ax incen i es p ac ices on he sus ainabili y o mic o, small and medium en e p ises in E hiopia du ing he ou b eak o co ona i us pandemic Jou nal o Inno a ion and En ep eneu ship P o ided in Coope a ion wi h: Sp inge Na u e Sugges ed Ci a ion: Deygan o, Kanbi o O kaido (2022) : The e ec o ax incen i es p ac ices on he sus ainabili y o mic o, small and medium en e p ises in E hiopia du ing he ou b eak o co ona i us pandemic, Jou nal o Inno a ion and En ep eneu ship, ISSN 2192-5372, Sp inge , Heidelbe g, Vol. 11, Iss. 1, pp. 1-22, h ps://doi.o g/10.1186/s13731-022-00194-8 This Ve sion is a ailable a : h ps://hdl.handle.ne /10419/259668 S anda d-Nu zungsbedingungen: Die Dokumen e au EconS o dü en zu eigenen wissenscha lichen Zwecken und zum P i a geb auch gespeiche und kopie we den. Sie dü en die Dokumen e nich ü ö en liche ode komme zielle Zwecke e iel äl igen, ö en lich auss ellen, ö en lich zugänglich machen, e eiben ode ande wei ig nu zen. So e n die Ve asse die Dokumen e un e Open-Con en -Lizenzen (insbesonde e CC-Lizenzen) zu Ve ügung ges ell haben soll en, gel en abweichend on diesen Nu zungsbedingungen die in de do genann en Lizenz gewäh en Nu zungs ech e. Te ms o use: Documen s in EconS o may be sa ed and copied o you pe sonal and schola ly pu poses. You a e no o copy documen s o public o comme cial pu poses, o exhibi he documen s publicly, o make hem publicly a ailable on he in e ne , o o dis ibu e o o he wise use he documen s in public. I he documen s ha e been made a ailable unde an Open Con en Licence (especially C ea i e Commons Licences), you may exe cise u he usage igh s as speci ied in he indica ed licence. h ps://c ea i ecommons.o g/licenses/by/4.0/ The e ec o  ax incen i es p ac ices on hesus ainabili y o mic o, small andmedium en e p ises inE hiopia du ing heou b eak o co ona i us pandemic Kanbi o O kaido Deygan o* Abs ac Pu pose: This s udy was aimed o iden i y he e ec o ax incen i e p ac ices on he sus ainabili y o MSMEs du ing an ou b eak o co ona i us pandemic in E hiopia. Design/me hodology/app oach: To achie e his objec i e, he esea che has employed a quan i a i e esea ch app oach wi h an explana o y esea ch design in which six hypo heses ha e been es ed. The p ima y da a we e collec ed om 300 MSMEs owne s/ope a o s using s uc u ed ques ionnai es. A mul iple eg ession model was employed o s udy he e ec o ax incen i es pa ame e s on he sus ainabili y o MSMEs. Findings: Acco ding o he eg ession analysis, his pape e ealed ha ax holiday, ax allowance, educ ion in he ax a e, accele a ed dep ecia ion, loss ca y o wa d, and ax exemp ion ha e a posi i e and s a is ically signi ican e ec on he sus ainabili y o he MSMEs. Resea ch limi a ions: The cu en s udy was geog aphically ocused on E hiopia by conside ing he MSMEs sec o . The subjec wise was ocused on he e ec o he ax incen i es on he sus ainabili y o MSMEs. The p ima y da a we e limi ed o he yea 2020. I migh be imp o ed in he u u e i o he esea che s inco po a e la ge i ms in he coun y and use seconda y da a o he analysis o mul iple yea s. Also, u u e esea che s will imp o e he same s udy by conside ing bo h mone a y and non-mon- e a y incen i es as s udy a iables. P ac ical implica ions: To su i e du ing he COVID-19 pandemic, MSMEs need sup- po om he go e nmen in he o m o ax incen i es. The ax incen i es play a g ea ole in enhancing he g ow h and he sus ainabili y o MSMEs as well as he economy as a whole. So he owne s o MSMEs ha e o ask he go e nmen o ob ain necessa y suppo in he o m o mone a y and non-mone a y incen i es o be sus ainable in economic ac i i y. Also, he indings and ecommenda ions o he cu en s udy migh se e as an ing edien and be in o ma i e o he policymake s on he MSMEs sec o . The go e nmen s ha e o con inue o shape ax incen i es policies o suppo he MSMEs’ sus ainabili y by p o iding ax and non- ax incen i es. Open Access © The Au ho (s) 2022. Open Access This a icle is licensed unde a C ea i e Commons A ibu ion 4.0 In e na ional License, which pe mi s use, sha ing, adap a ion, dis ibu ion and ep oduc ion in any medium o o ma , as long as you gi e app op ia e c edi o he o iginal au ho (s) and he sou ce, p o ide a link o he C ea i e Commons licence, and indica e i changes we e made. The images o o he hi d pa y ma e ial in his a icle a e included in he a icle’s C ea i e Commons licence, unless indica ed o he wise in a c edi line o he ma e- ial. I ma e ial is no included in he a icle’s C ea i e Commons licence and you in ended use is no pe mi ed by s a u o y egula ion o exceeds he pe mi ed use, you will need o ob ain pe mission di ec ly om he copy igh holde . To iew a copy o his licence, isi h p:// c ea i eco mmons. o g/ licen ses/ by/4. 0/. RESEARCH Deygan o Jou nal o Inno a ion and En ep eneu ship (2022) 11:8 h ps://doi.o g/10.1186/s13731-022-00194-8 Jou nal o Inno a ion and En ep eneu ship *Co espondence: kanbi o.o k[email p o ec ed] Depa men o Accoun ing and Finance, Dilla Uni e si y, Dilla, E hiopia Page 2 o 22 Deygan o Jou nal o Inno a ion and En ep eneu ship (2022) 11:8 O iginali y/ alue: This s udy con ibu es o empi ical e idence abou he e ec o ax incen i es p ac ices on he sus ainabili y o MSMEs du ing he ou b eak o COVID-19 in E hiopia by conside ing six ax incen i e p ac ices in e ms o ax holiday, ax allow- ance, educ ion in he ax a e, accele a ed dep ecia ion, loss ca ied o wa d, and ax exemp ion. Keywo ds: Mic o, Small and medium-sized en e p ise, Tax incen i es p ac ices, Sus ainabili y, Co ona i us pandemic, E hiopia In oduc ion P omo ing sus ainable de elopmen goals (SDGs) a e he op agenda o all go e nmen s in he wo ld o achie e he li ing s anda d o hei people. MSMEs a e he key ool o achie e sus ainable de elopmen goals. MSMEs a e conside ed as an engine o he economy and used as key ins umen s o educing po e y h ough p omo ing sus ain- able de elopmen goals (Jansson, e al., 2017). The MSMEs suppo he go e nmen s by educing he unemploymen a e and paying ax e enue o encou age economic de el- opmen (Agyapong, 2010). To emain hei con ibu ion o economic g ow h, MSMEs ha e o be sus ainable a any ime (Tekola & Gidey, 2019). E en i MSMEs play a g ea ole in wo ld economic g ow h, MSMEs we e hi by he ou b eak o he co ona i us pandemic (Mogaji, 2020). The labo ma ke impac o he COVID-19 pandemic e eals he de as a ing e ec on wo ke s in he in o mal economy and hund eds o millions o MSMEs wo ldwide, and as a esul , MSME’s con ibu ion o na ional GDP, c ea ion o employmen oppo uni y, and o he bene i s a e being hampe ed. MSMEs a e mos ly a he bo om o he indus ial chain and ace p oblems o high ene gy consump ion and low ou pu in de eloping coun ies. Thus, s udying he sus ainabili y o MSMEs in eme ging economies is necessa y and solu ions a e needed o gi e hem he suppo hey need o su i e and con inue o con ibu e o he global economy (Engidaw, 2021). Cu en ly, he Go e nmen o E hiopia has o mula ed 10-yea s a egic plans om he pe iod 2020 o 2030 o becoming an A ican Beacon o P ospe i y in 2030. Sus ainable de elopmen goals can be achie ed i MSMEs sus ain hemsel es in he coun y. Bu , he pandemic led o massi e damage o economic ac i i ies in gene al and MSMEs in pa - icula ollowing es ic ions on human mobili y by he go e nmen and s ay-a -home ad ice by he minis y o heal h. These ac ions and ad ice, hen, ha e ad e sely a ec ed bo h he supply and demand side o MSME’s ope a ion speci ically, and he pandemic’s nega i e consequences on MSME’s include aw ma e ial supply was s opped, sho age o wo ke s happened, sho age o wo king capi al c ea ed, hei ope a ional cos inc eased, and decline in consume s consump ion o p oduc s o MSMEs (Engidaw, 2021). So, he sus ainabili y o MSMEs du ing COVID-19 p essu e is a ma e and bu ning issue o esea che s and academicians ac oss he wo ld. I is ime o he go e nmen s o sup- po he MSMEs du ing his ha d ime o achie e he sus ainabili y o MSMEs. The go - e nmen can also ake on new esponsibili ies o suppo wide go e nmen ac ions and help add ess he impac o he COVID-19 pandemic on hei business ac i i y. The ax incen i e is he bes go e nmen measu e in place in ended o encou age MSMEs by deduc ion, exclusion, exemp ion om ax liabili y o a ce ain pe iod o sus ain sus ain- abili y, and con ibu ion o economic de elopmen . Tax incen i es a e ways o educ- ing axes o businesses and encou aging hose businesses and indi iduals o engage in Page 3 o 22 Deygan o Jou nal o Inno a ion and En ep eneu ship (2022) 11:8 beha io ha is socially esponsible and bene i s he communi y. So ha well-designed ax incen i e p ac ices ha e a posi i e and s a is ically signi ican e ec on he g ow h and sus ainabili y o MSMEs (A awodi & Ojekal, 2012; Ahmedo a, 2015; Twesige & Gasheja, 2019). The opic e ec o ax incen i es p ac ices on he sus ainabili y o MSMEs in E hiopia is o e looked and no esea ched well du ing he Ou b eak o he Co ona Vi us Pan- demic. To he le el o knowledge o he esea che , ew pieces o esea ch ha e been conduc ed on a ela ed opic in E hiopia. Fo ins ance, Ayele (2006); Alene (2020); and Engidaw (2021) we e add essed ac o s a ec ing mic o and small business en e p ises’ pe o mance in E hiopia. The empi ical s udies igno ed he e ec o ax incen i es p ac- ice on he sus ainabili y o MSMEs du ing he COVID-19 pandemic because MSMEs in he coun y we e hi by he pandemic. This is why he esea che was mo i a ed o con- duc his esea ch wo k o ill he a o emen ioned esea ch gaps. Speci ically, he pape was designed o iden i y he e ec o six ax incen i e indica o s, like ax holiday, ax allowance, dec ease in he ax a e, accele a ed dep ecia ion, loss ca y o wa d, and ax exemp ion, on he sus ainabili y o MSMEs in E hiopia du ing he COVID-19 pandemic. Hence, he indings and ecommenda ions o he cu en s udy would se e as an ing e- dien and be in o ma i e o he go e nmen , MSMEs owne s, and policymake s on he MSMEs sec o . The es o he pape was o ganized as ollows: sec ion wo e iews ela ed o li e - a u e. Sec ion h ee desc ibes he me hodology. Resul s and discussion is included in sec ion ou . Sec ion i e p o ides conclusions and ecommenda ions. Las ly, sec ion six p o ides di ec ion o u u e esea ch. Li e a u e e iew Co ona i us disease In ea ly 2020, a e a Decembe 2019 ou b eak in China, he Wo ld Heal h O ganiza- ion iden i ied SARS-CoV-2 as a new ype o co ona i us. The ou b eak quickly sp ead a ound he wo ld. COVID-19 is a disease caused by SARS-CoV-2 ha can igge wha doc o s call a espi a o y ac in ec ion. I can a ec you uppe espi a o y ac (sinuses, nose, and h oa ) o lowe espi a o y ac (windpipe and lungs). I sp eads he same way o he co ona i uses do, mainly h ough pe son- o-pe son con ac . In ec- ions ange om mild o deadly. The Wo ld Heal h O ganiza ion (WHO) on Ma ch 11 decla ed COVID-19 a pandemic, poin ing o he o e 118,000 cases o co ona i us ill- ness in o e 110 coun ies and e i o ies a ound he wo ld and he sus ained isk o u he global sp ead. An epidemic e e s o an up ick in he sp ead o a disease wi hin a speci ic communi y. By con as , he WHO de ines a pandemic as he global sp ead o a new disease, hough he speci ic h eshold o mee ing hose c i e ia is uzzy. The e m is mos o en applied o new in luenza s ains, and he CDC says i is used when i uses “can in ec people easily and sp ead om pe son o pe son in an e icien and sus ained way” in mul iple egions. The decla a ion e e s o he sp ead o a disease, a he han he se e i y o he illness i causes (Ra en, 2020). Co ona i us disease (COVID-19) is an in ec ious disease caused by a newly disco - e ed co ona i us. Mos people who all sick wi h COVID-19 will expe ience mild o mode a e symp oms and eco e wi hou special ea men . The i us ha causes Page 4 o 22 Deygan o Jou nal o Inno a ion and En ep eneu ship (2022) 11:8 COVID-19 is mainly ansmi ed h ough d ople s gene a ed when an in ec ed pe son coughs, sneezes, o exhales. These d ople s a e oo hea y o hang in he ai and quickly all on loo s o su aces. You can be in ec ed by b ea hing in he i us i you a e wi hin p oximi y o someone who has COVID-19, o by ouching a con amina ed su ace and hen you eyes, nose, o mou h. A co ona i us is a kind o common i us ha causes an in ec ion in you nose, sinuses, o uppe h oa . Mos co ona i uses a e no dange - ous. Co ona Vi us eme ged in Wuhan, China, sp ead ac oss he wo ld in ec ing mo e han 6.1 million and causing he dea h o mo e han 371,857 people as o June 1, 2020. In A ica, since he i s case was epo ed in Egyp , he i us has sp ead o 53 coun- ies wi hin weeks. As o June 1, 2020, mo e han 146,996 cases and 4222 dea hs we e epo ed. In E hiopia, a o al o 1257 cases and 12 dea hs we e epo ed by he Minis- y o Heal h on June 1, 2020(MOH, 2020) and Communi y Heal h Ins i u e (2020). The ou b eak o he COVID-19 pandemic has dis u bed he poli ical, economic, social, eli- gious, and inancial s uc u e o he wo ld (Mogaji, 2020). De ini ion o MSMEs While he e s ill lacks a uni e sally accep ed de ini ion, MSMEs a e widely ecognized o he impo an con ibu ions hey make o sus ainable de elopmen , in e ms o con- ibu ions o economic g ow h, c ea ion o decen jobs, p o ision o public goods and se ices, as well as po e y alle ia ion and educed inequali y. Acco ding o he e ised MSMEs G ow h S ages Guideline No. 004/2011, he e ised de ini ion conside s used labo o ce, including amily labo ; o al asse s wi hou wo king building and he di ision o sub-sec o in o se ice and indus y a e he main c i e ia (Table1). Besides, he minis e ’s p oclama ion numbe 201/2011 de ines mic o-en e p ises as an en e p ise ha ing o al capi al o B 50,000 no including building o se ice en e p ise o no exceeding B 100,000 o indus ial en e p ise. The p oclama ion also de ines a small-scale en e p ise as an en e p ise ha ing o o al capi al o B 50,001 o 100,000 no including building and ha ing 6–30 employees o se ice o ha ing he capi al o B 100, 001 o 1,500,000 o he indus y. Medium en e p ises a e hese business en e - p ises wi h a o al in es men be ween Bi 500,000 up o Bi 1 million, including hose en e p ises ha ha e high echnical consul ancy and excluding ano he high- ech es ablishmen . Sus ainabili y o MSMEs Resea ch shows ha in es ing and enabling MSMEs o ul ill hei de elopmen po en- ial can ha e signi ican con ibu ions o 60% o he SDG a ge s, including hose ela ed o goals SDG 8 (P omo e sus ained, inclusi e, and sus ainable economic g ow h, ull and p oduc i e employmen , and decen wo k o all) and SDG 9 (Build esilien in as uc- u e, p omo e inclusi e and sus ainable indus ializa ion, and os e inno a ion), among o he s. Thus, in es ing in and suppo ing he sus ainabili y o MSMEs in he wo ld is an in eg al pa o he sus ainabili y e o s o clien s, can yield signi ican p og ess owa ds an economy ha wo ks o all. MSMEs ep esen he lion’s sha e o businesses and employmen , as hey ep esen 99% o businesses and 67% o employmen . The e o e, hey a e among he s onges d i e s o economic de elopmen . Howe e , despi e hei Page 5 o 22 Deygan o Jou nal o Inno a ion and En ep eneu ship (2022) 11:8 Table 1 De ini ion o MSMEs in E hiopia Sou ce: Alene (2020) Le el o en e p ise Sec o Employmen To al asse (in Bi ) Mic oen e p ise Indus y sec o : (includes manu ac u ing, cons uc ion, and mining sub-sec o s) A business en e p ise which uses no o e i e labo o ce, including business owne The mone a y alue o he en e p ise’s o al asse is no o e 100,000 E hiopian B Se ice sec o : (includes e ail ade, anspo , ho el, and ou ism in o ma ion echnology and epai s) A business en e p ise which uses no o e i e labo o ce, including business owne The o al asse is no o e 100,000 E hiopian B Small en e p ise Indus ial sec o : (includes manu ac u ing, cons uc- ion, and mining sub-sec o s) A business en e p ise ha uses 6–30 labo o ce, including business owne s and amily labo The inancial alue o he en e p ise’s o al asse anging om 100,001 o 1500,000 B Se ice sec o : (includes e ail ade, anspo , ho el, and ou ism in o ma ion echnology and epai s) A business en e p ise ha uses 6–30 labo o ce, including business owne s and amily labo The mone a y alue o he en e p ise’s o al asse ang- ing om 50,001 o 500,000 B Medium-sized En e p ises Indus ial sec o : (includes manu ac u ing, cons uc- ion) Abo e 30 labo Bi 1,500,000 up o Bi 2 million Se ice sec o : (includes e ail ade, anspo , ho el, and ou ism in o ma ion echnology and epai s) Abo e 30 labo Bi 500,000 up o Bi 1 million Page 6 o 22 Deygan o Jou nal o Inno a ion and En ep eneu ship (2022) 11:8 po en ial, MSMEs in he egion end o s ay small and a e signi ican ly less p oduc i e han la ge i ms (In e -Ame ican De elopmen Bank, 2021). A IDB In es we o e inclusi e and sus ainable inancial solu ions by suppo ing inancial se ices clien s o maximize hei unique ole in p omo ing sus ainable and inclusi e economic g ow h. We do his by in eg a ing a sus ainabili y lens in hei in es - men s, p oduc s, and se ices o hei clien s, and also by expanding ou clien s’ inan- cial inclusion o MSMEs and unde se ed popula ions. MSMEs ha e a e y impo an ole in de eloping he Philippine economy. They help educe po e y by c ea ing jobs o he coun y’s g owing labo o ce. They s imula e economic de elopmen in u al and a - lung a eas; MSMEs a e one o he co e engines o he Indian economy and a e p ojec ed o g ow u he in he coming decade. MSMEs, especially manu ac u ing sec- o en e p ises, a e pa icula ly esou ce-in ensi e and emi a high quan um o pollu ion and ca bon emissions. MSMEs in E hiopia a e he chie sou ces o jobs and income, sig- ni ican ly con ibu e o he local, egional and na ional GDP and key policies o elimi- na e po e y (Tekola & Gidey, 2019). Empi ical e iew o  ela ed s udies Eme ging economies ha e in oduced ax incen i es o a ious easons. In some coun- ies in ansi ion, such ins umen s may be seen as a coun e weigh o he in es men disincen i es inhe en in he gene al ax sys em. In o he coun ies, he incen i es a e in ended o o se o he disad an ages ha in es o s may ace, such as a lack o in a- s uc u e, complica ed and an iqua ed laws, bu eauc a ic complexi ies, and weak adminis a ion. In E hiopia, wi h he inc ease in he numbe o people in ec ed wi h COVID-19, he go e nmen decla ed a s a e o eme gency aiming o cu b he sp ead o he i us in he coun y. The s a e o eme gency pu s es ic ions on a el and human mobili y which hu he economy and businesses pa icula ly mic o and small sec- o s. This e ec equi es mo e esea ch-based e idence ha shows he ex en o which MSMEs a e a ec ed. Al hough epo s a e coming ou om di e en media ou le s, u - he e alua ion is equi ed o e eal he e ec o he unp eceden ed pandemic on he MSMEs and p o ide possible solu ions. So a no s udy is conduc ed on his issue. Now, i is ime o espond o he men ioned gap h ough apid assessmen o he e ec o Co ona Vi us on MSME’s ope a ion and p o ide insigh o decision-make s in he sec- o and esea che s o conduc a u he in es iga ion (Lemi e al., 2020). P io s udies add essed he same issue and sugges ed ha ax incen i e indica o s like ax holiday, ax allowance, dec ease in he ax a e, accele a ed dep ecia ion, loss ca y o wa d, and ax exemp ion on he sus ainabili y o MSMEs.. The empi ical indings a e summa ized as ollows (Table2): Concep ual amewo k The heo e ical amewo k explains he en i e esea ch b ie ly; o his s udy, he e a e six explana o y a iables, including ax holiday, ax allowance educ ion in he ax a e, accele a ed dep ecia ion, loss ca ied o wa d, and ax exemp ion as explana o y a i- ables, and he sus ainabili y o MSMEs as he dependen a iable (Fig.1). Page 7 o 22 Deygan o Jou nal o Inno a ion and En ep eneu ship (2022) 11:8 Resea ch me hodology Resea ch design and esea ch app oach This pape has employed an explana o y esea ch design because he objec i e o his s udy is o iden i y he e ec s o ax incen i es on he g ow h o MSMEs in E hiopia. The esea ch app oach ha was employed in his s udy was a quan i a i e esea ch app oach due o he quan i a i e na u e o he da a. Ta ge popula ion, sampling echniques, andsample size de e mina ion Ta ge popula ion The a ge popula ion was 2,490,645 MSMEs licensed ope a ed in E hiopia as o May 2020. Table 2 Summa y o empi ical e iew and hypo heses Sou ce: own de elopmen based on he empi ical e iew (2020) Va iable name Empi ical S udies indings Tax holiday Empi ical s udies, like A awodi and Ojekal (2012); Tekola and Gidey (2019); Ahmedo a (2015); Boso e al. (2017); Fe nández-Viñé e al. (2013); Twesige and Gasheja (2019); and Jansson e al. (2017), we e e idenced ha ax holiday has posi i e e ec On Sus ainabili y O MSMEs. So i can be hypo hesized ha H1: holiday has a posi i e and s a is ically signi ican e ec on he sus ainabili y o MSMEs Tax allowance P io s udies, such as A awodi and Ojekal (2012); Ahmedo a (2015); Boso e al. (2017); Fe nández-Viñé e al. (2013); and Twesige and Gasheja (2019), we e sugges ed ha ax allowance has a posi i e e ec On he Sus ainabili y o MSMEs. So ha a en a i e s a emen could be de eloped H2: ax allowance has a posi i e and s a is ically signi ican e ec on he sus ainabili y o MSMEs Reduc ion in ax a e S udies we e conduc ed by Ahmedo a, (2015); Vo onko a e al. (2018); Boso e al. (2017); Fe nández-Viñé e al. (2013); and Twesige and Gasheja (2019) we e educ ion in ax a e has a posi i e e ec on he sus ainabili y o MSMEs. Hence, he hypo hesis can be de eloped as ollows: H3: educ ion in ax a e has a posi i e and s a is ically signi ican e ec on he sus- ainabili y o MSMEs Accele a ed dep ecia ion Expe imen al s udies o Ahmedo a (2015); A awodi and Ojekal (2012); Boso e al. (2017); Fe nández-Viñé e al. (2013); Twesige and Gasheja (2019); and Jansson e al. (2017) we e e idenced ha accele a ed dep ecia ion has a posi i e e ec on he sus ainabili y o MSMEs H4: accele a ed dep ecia ion has a posi i e and s a is ically signi ican e ec on he sus ainabili y o MSMEs Loss ca y o wa d Fi s -hand s udies, like Ahmedo a (2015); Boso e al. (2017); Fe nández-Viñé e al. (2013); Twesige and Gasheja (2019); Jansson e al. (2017); and A awodi and Ojekal (2012), we e ound ou ha Loss ca y o wa d has a posi i e e ec on he sus ainabil- i y o MSMEs. So he esea che de eloped he en a i e s a emen as ollows: H5: Loss ca y o wa d has a posi i e and s a is ically signi ican e ec on he sus ain- abili y o MSMEs Tax exemp ion P e ious s udies we e unde aken by Boso e al. (2017); Fe nández-Viñé e al. (2013); Twesige and Gasheja (2019); Jansson e al. (2017); A awodi and Ojekal (2012); and Ahmedo a (2015) whe e e idenced ax exemp ion has a posi i e e ec on he sus- ainabili y o MSMEs. I can be hypo hesized ha H6: Tax exemp ion has a posi i e and s a is ically signi ican e ec on he sus ainabil- i y o MSMEs Page 8 o 22 Deygan o Jou nal o Inno a ion and En ep eneu ship (2022) 11:8 Sampling echniques To selec a sample size om 2,490,645 MSMEs, he esea che used a simple andom sampling echnique o gi e equal chances o MSMEs owne s/ope a o s. Sample size de e mina ion To de e mine he sample size o his s udy, he esea che has used he ma hema ical o mula o Yamane (1967) by aking in o accoun he o al popula ion, he sampling e o , and he le el o eliabili y, and i is assumed ha he sample would ha e 95% eli- abili y abou popula ion and a sampling e o will be 5%. This simples o mula is. whe e n is he sample size; N is he a ge popula ion; 2,490,645 1 +  0.052  ∗2,490,645 = 400 . The ou hund ed sample size was dis ibu ed among Mic o business En e p ises, Small-scale En e p ises, and Medium-Sized En e p ises in E hiopia (Table3). n = N 1+  0.052  ∗N , 1) Tax holiday 2) Tax Allowance 3) Reduc ion in ax a e 4) Accele a ed Dep ecia ion Sus ainabili y o MSMEs Independen Va iables Dependen Va iable 5) Loss ca y o wa d 6) Tax Exemp ion Fig. 1 Concep ual F amewo k. Sou ce: Own de elopmen based on li e a u e e iew (2020) Table 3 Sample size dis ibu ion Sou ce: Fede al Mic o and Small En e p ises De elopmen Agency (2020) Sampling Uni The popula ion o each en e p ise Sample Size calcula ions Sample size om each en e p ise Mic o business En e p ises 930,215 (930,215/2,490,645) × 400 150 Small-scale En e p ises 830,215 (830,215/2,490,645) × 400 133 Medium-Sized En e p ises 730,215 730,215/2,490,645) × 400 117 To al 2,490,645 (2,490,645/2,490,645) × 400 400 Page 15 o 22 Deygan o Jou nal o Inno a ion and En ep eneu ship (2022) 11:8 Co ela ion analysis Co ela ion analysis measu es he ela ionship be ween wo i ems. The co ela ion ma ix o his s udy was compu ed as ollows: Wi h ega d o he ela ionship be ween he sus ainabili y o MSMEs and independen a iables wi h a coe icien o co ela ion 1 indica es ha each a iable is pe ec ly co - ela ed wi h each o he . The esul o he co ela ion analysis in Table9 shows ha ax holiday, ax allowance, educ ion in he ax a e, accele a ed dep ecia ion, loss ca ied o wa d, and ax exemp ion we e posi i e and signi ican ly co ela ed wi h sus ainabili y a a 1% le el o signi icance. The co ela ion among independen a iables is no mo e han 0.8. This implies ha he e is no mul icollinea i y p oblem in he model and he alues o co ela ion a e eliable. Assessmen o o dina y leas squa e assump ions The mos common assump ions o be es ed be o e unning he inal eg ession esul a e no mali y, mul icollinea i y, au oco ela ion, and he e oscedas ici y. Assump ion #1: he alues o  he esiduals a e no mally dis ibu ed (no mali y es ) The Classical Linea Reg ession Model assumes ha he e o e m is no mally dis ib- u ed wi h he mean o e o being ze o as he posi i e e o will o se he nega i e e o . This assump ion can be es ed by looking a he dis ibu ion o esiduals. We can do his by checking he his og am his has shown as ollows: Table 10 Pea son co ela ion ma ix o he a iables **Co ela ion is signi ican a he 0.01 le el (2 ailed) *Co ela ion is signi ican a he 0.05 le el (2 ailed) Sou ce: Su ey da a, 2020 Va iables 1 2 3 4 5 6 7 Sus ainabili y o MSMEs (1) 1 Tax holiday (2) 0.350** 1 Tax allowance (3) 0.153** 0.285** 1 Reduc ion in ax a e (4) 0.257** 0.132*0.060 1 Accele a ed dep ecia ion (5) 0.067** 0.064 − 0.181** 0.264** 1 Loss ca y o wa d (6) 0.352** − 0.129*− 0.452** 0.045 0.005 1 Tax exemp ion (7) 0.368** − 0.262** − 0.021 0.017 − 0.184** 0.399** 1 Page 16 o 22 Deygan o Jou nal o Inno a ion and En ep eneu ship (2022) 11:8 Sou ce: Pe sonal Su ey da a, 2020. Based on he esul s shown abo e, he his og am on he dis ibu ion o esiduals which is bell shaped is linea o he eg ession line om he SPSS ou pu . So, he esea che concluded ha he e is no no mali y p oblem ( he alues o he esiduals a e no mally dis ibu ed) on he da a used o his s udy (Table10). Assump ion #2: es o mul icollinea i y This is essen ially he assump ion ha you p edic o s a e no oo highly co ela ed wi h one ano he . The ole ance le els o all a iables a e g ea e han 0.10 and he VIF alue is less han 10; hen we can conclude ha p edic o s a e no oo highly co ela ed wi h one ano he . As shown in he collinea i y Table11, he ole ance le els o all a iables a e g ea e han 0.10 and he VIF alue is less han 10. This indica es ha he e we e no mul icollin- ea i y p oblems ha al e he analysis o he indings; a he i leads o he accep ance o R- alue, ole ance, and VIF alues. Table 11 Collinea i y s a is ics Sou ce: Pe sonal su ey da a, 2020 Va iables Collinea i y s a is ics Tole ance VIV Tax holiday 0.824 1.214 Tax allowance 0.658 1.519 Reduc ion in ax a e 0.897 1.115 Accele a ed Dep 0.852 1.174 Loss ca y o wa d 0.629 1.590 Tax exemp ion 0.720 1.388 Page 17 o 22 Deygan o Jou nal o Inno a ion and En ep eneu ship (2022) 11:8 Assump ion #3: he alues o  he esiduals a e independen (au oco ela ion) This is he same as saying ha we need ou obse a ions (o indi idual da a poin s) o be independen o one ano he (o unco ela ed). We can es his assump ion using he Du bin-Wa son s a is ic, h ough SPSS. The Du bin-Wa son close o 2 o mo e is accep able. The Du bin-Wa son s a is ics alue which is close o 2, equal o 2, o mo e sugges s ha he e is no au oco ela ion among e o e ms. Acco dingly, he Du bin- Wa son s a is ics alue o 1.932 is close o 2, which indica es ha au oco ela ion is no a h ea o he use o OLS in his s udy (see eg ession Table7). The e o e, i can be con- cluded ha he alues o he esiduals a e independen which implies he absence o a se ial co ela ion p oblem in ou eg ession analysis. Assump ion #4: he a iance o  he esiduals iscons an (he e oscedas ici y es ) This is called homoscedas ici y and is he assump ion ha he a ia ion in he esidu- als (o amoun o e o in he model) is simila a each poin ac oss he model. In o he wo ds, he sp ead o he esiduals should be ai ly cons an a each poin o he p edic o a iables (o ac oss he linea model). We can ge an idea o his by looking a ou o igi- nal sca e plo bu o p ope ly es his, we need o ask SPSS o p oduce a special sca e - plo o us ha includes he whole model (and no jus he indi idual p edic o s). To es he 4 h assump ion, we need o plo he s anda dized alues ou model would p edic , agains he s anda dized esiduals ob ained. This has shown as ollows (Fig.2): The abo e igu e showed ha he e is homoscedas ici y and he assump ion ha he a ia ion in he esiduals (o amoun o e o in he model) is simila a each poin ac oss he model is sa is ied. So, we can conclude ha he e is no he e oscedas ici y p oblem in he model. Fig. 2 Assessmen o he e oscedas ici y using Sca e plo . Sou ce: Pe sonal su ey da a, 2020 Page 18 o 22 Deygan o Jou nal o Inno a ion and En ep eneu ship (2022) 11:8 Table 12 Reg ession esul s The dependen a iable, sus ainabili y o MSMEs, **Co ela ion is signi ican a he 0.01 le el, *Co ela ion is signi ican a he 0.05 le el (2 ailed) Sou ce: Pe sonal Su ey da a, 2020 R = 0.687, R2 = 0.472, Ad R2.461,S d. E o o he Es ima e = 0.88299, Du bin-Wa son (d) = 1.932, F-s a is ic = 43.583, p- alue = 0.000, ANOVA wi h (p- alue o 0.000 Model Uns anda dized Coe icien s S anda dized Coe icien s TSig 95.0% Con idence In e al o B Collinea i y S a is ics BS d. E o Be a Lowe Bound Uppe Bound Tole ance VIF (Cons an ) − 2.378 0.378 − 6.285 0.000 − 3.123 − 1.633 Tax holiday 0.433 0.050 0.401 8.578 0.000** 0.333 0.532 0.824 1.214 Tax Allowance 0.199 0.047 0.217 4.139 0.000** 0.103 0.290 0.658 1.519 Reduc ion in Tax Ra e 0.178 0.056 0.141 3.136 0.002** 0.065 0.285 0.897 1.115 Accele a ed Dep 0.170 0.073 0.107 2.314 0.021* 0.025 0.314 0.852 1.174 Loss Ca y Fo wa d 0.341 0.052 0.353 6.594 0.000** 0.240 0.443 0.629 1.590 Tax exemp ion 0.441 0.062 0.355 7.088 0.000** 0.318 0.563 0.720 1.388 Page 19 o 22 Deygan o Jou nal o Inno a ion and En ep eneu ship (2022) 11:8 The eg ession analysis (in e en ial s a is ics): sus ainabili y o MSMEs As long as he model sa is ies he OLS assump ions o linea eg ession, he eg ession coe icien s gi e us he bes possible es ima es. Be o e unning he inal eg ession analy- sis, his s udy es ed no mali y, mul icollinea i y, au oco ela ion, and he e oscedas ici y assump ions and con i med ha all he assump ions we e sa is ied in he a o emen- ioned sec ion. Then, he eg ession analysis was done as ollows. The mul iple linea eg ession esul s a e p esen ed in Table 12; he adjus ed R-squa ed s a is ics o he model was 46.1 pe cen . The esul indica es ha 46.1 pe cen a ia ion in he dependen a iable was join ly explained by he explana o y a iables in he model, whe eas he emaining 53.9 pe cen o he a ia ion in he sus ainabili y o MSMEs (as measu ed by he Like scale) is explained by o he a iables which a e no included in he model. The coe icien o explana o y a iables ax holiday 0.433, ax allowance 0.199, educ ion in ax a e 0.178, accele a ed dep eca ion 0.170, loss ca y o wa d 0.341, ax exemp ion 0.441 implies ha 1% inc ease in he a iables leads o 43.3%,19.9%, 17.8%, 17%, 34.1%, and 44.1% inc ease in sus ainabili y o MSMEs. Besides, he F-s a is ics (43.583) in he model summa y and ANOVA wi h (p- alue o 0.000) we e used o es he o e all signi icance o he model and indica ed he eliabili y and alidi y o he model a a 1% le el o signi icance. This ells us ha he model as a whole is s a is- ically signi ican . Discussion The esul o his s udy shows ha ax holiday wi h a coe icien o eg ession [β = 0.433] has a posi i e and s a is ically signi ican e ec on he sus ainabili y o MSMEs a a 1% le el o signi icance since (p- alue o 0.000 > 0.01). Hence, hypo hesis one is accep ed. This inding is consis en wi h he inding o o he s udies esul s, such as A awodi and Ojekal (2012); Tekola and Gidey (2019); Ahmedo a (2015); Boso e al. (2017); Fe nández- Viñé e al. (2013); Twesige and Gasheja (2019); and Jansson e al. (2017) who e idenced ax holiday posi i e e ec on he sus ainabili y o MSMEs in E hiopia. This implies ha he exis ence o a ax holiday enhances he sus ainabili y o MSMEs ope a ing in E hio- pia. Secondly, he coe icien o eg ession ax allowance [β = 0.199] is posi i e and s a- is ically signi ican a a 1% le el o signi icance wi h (p- alue o 0.000 > 1%). The e o e, hypo hesis wo s a ed is accep ed. This inding is consis en wi h he gene al logic ha he exis ence o ax eedom enables o accumula ion o capi al since he e a e no annual paymen s o he go e nmen . I is also consis en wi h empi ical indings o A awodi and Ojekal (2012); Ahmedo a (2015); Fe nández-Viñé e al. (2013); and Twesige and Gasheja (2019) which sugges ed ha ax allowance has a posi i e e ec on he sus ainabili y o MSMEs. This e idenced ha ax allowance has a posi i e and signi ican e ec on he sus ainabili y o MSMEs. The esul o coe icien o [β = 0.178] is posi i e and s a is ically signi ican a a 1% le el o signi icance because he sig o 0.002 is less han 1%. Hence, hypo hesis h ee is accep ed. This inding is consis en wi h he empi ical indings o A awodi and Ojekal (2012); Ahmedo a (2015); Fe nández-Viñé e al., (2013); and Twesige and Gasheja (2019) whe e educ ion in ax a e has a posi i e e ec on he sus ainabili y o MSMEs. This ells us ax a e educ ion has highe con ibu ion ax sus ainabili y o MSMEs. On he o he hand, he accele a ed dep ecia ion a iable has a coe icien o eg ession is Page 20 o 22 Deygan o Jou nal o Inno a ion and En ep eneu ship (2022) 11:8 [β = 0.170] is posi i e and s a is ically signi ican wi h (p- alue o 0.021) which is signi i- can a a 5%le el o signi icances. The e o e, hypo hesis ou is accep ed. This inding is consis en wi h eg ession esul s o s udies by Boso e al. (2017); Fe nández-Viñé e al. (2013); and Twesige and Gasheja (2019) which e idenced ha accele a ed dep ecia ion has a posi i e e ec on he sus ainabili y o MSMEs. This indica es ha conside ing he highe amoun o accele a ed dep ecia ion amoun om income ax has a posi i e e ec on he sus ainabili y o MSMEs in E hiopia. Conce ning he loss ca y o wa d, he esul o his s udy shows ha he inc ease in loss ca ied o wa d wi h a coe icien o eg ession [β = 0.341] has posi i e and s a is i- cally signi ican a 5% le el o signi icance (p alue o 0. 0.00 < 1% le el o signi icances). Hence, hypo hesis i e is accep ed. The esul is simila wi h indings o Ahmedo a (2015); Boso e al. (2017); Fe nández-Viñé e al. (2013); Twesige and Gasheja (2019); and Twesige and Gasheja (2019) ha ound ou ha loss ca y o wa d has a posi i e e ec on he sus ainabili y o MSMEs. I can be concluded ha loss ca y o wa d has a posi i e and signi ican e ec on he sus ainabili y o MSMEs. Las bu no leas , a ax exemp- ion wi h a coe icien o eg ession o [β = 0.441] has a posi i e and signi ican e ec on he sus ainabili y o MSMEs wi h a p alue 0.000 < 5% le el o signi icance. The e o e, hypo hesis six is accep ed by he esea che . This inding is consis en wi h he empi ical esul o Fe nández-Viñé e al. (2013); Twesige and Gasheja (2019); A awodi and Ojekal (2012); and Ahmedo a (2015) whe e e idenced ax exemp ion has a posi i e e ec on he sus ainabili y o MSMEs. This implies ha ax exemp ion o MSMEs has a posi i e con ibu ion o he sus ainabili y o MSMEs. Conclusion and ecommenda ions In his pape , he esea che explo ed he e ec o ax incen i e pa ame e s, such as ax holiday, ax allowance, ax educ ion, accele a ed dep ecia ion, and loss ca y o - wa d, on he sus ainabili y o MSMEs. By keeping his objec i e in mind, he esea che collec ed he p ima y da a h ough a sel -adminis a ed ques ionnai e and analyzed i h ough SPSS e sion 21.0. A mul iple eg ession model was employed o es he hypo hesis. The conclusion ha can be d awn om he indings was ha hypo heses one up o six ha e been accep ed by he esea che . This ells us an inc ease in he ax holiday, ax allowance, educ ion in he ax a e, accele a ed dep ecia ion, loss ca y o - wa d, and ax exemp ion, which lead o an inc ease in business sus ainabili y o MSMEs. This means he exis ence o ax incen i e p ac ices p omo es he exis ence o MSMEs. Hence, o a ac MSMEs expansion sus ainabili y, go e nmen s should gi e op p io - i y o imp o ing hei coun ies’ MSMEs business clima es by adop ing addi ional ax incen i e p ac ices o educe he nega i e e ec o he COVID-19 pandemic on o e all business o imp o e and p omo e he economic de elopmen o he na ion while mini- mizing he di e se e ec o co ona i us on he su i al and g ow h o MSMEs. The pol- icymake s should con inue o shape ax incen i es policies by aking in o accoun he pa ame e s, like ax holiday, ax allowance, educ ion in he ax a e, accele a ed dep e- cia ion, loss ca y o wa d, and ax exemp ion, o suppo he sus ainabili y and g ow h o MSMEs ac oss he wo ld. Besides, he MSMEs business owne s/ope a o s ha e o unde s and and wo k on app op ia e implemen a ion o ax and non- ax incen i es Page 21 o 22 Deygan o Jou nal o Inno a ion and En ep eneu ship (2022) 11:8 p o ided o hem o sus ain hei business pe o mance and con ibu ion o economic de elopmen . Fu he esea ch di ec ion o imp o ing limi a ions o  his s udy No s udy is ee o limi a ions; acco dingly, he e a e limi a ions in he cu en s udy ha needs u u e imp o emen s. This s udy was geog aphically ocused on E hiopia by con- side ing he MSMEs sec o . The subjec wise was ocused on he e ec o he ax incen- i es ( ax holiday, ax allowance, accele a ed dep ecia ion, educ ion in he ax a e, loss ca ied o wa d, and ax exemp ions) and on he sus ainabili y o MSMEs du ing he exis ence o COVID-19. I was se ou o in es iga e he e ec o six ax incen i es indi- ca o s. This s udy used only p ima y da a which a e limi ed o he yea 2020. Hence, his s udy can be enhanced/imp o ed i i is done a con inen al and global le els and also i is possible i i is done by using di e en me hodology and sampling echniques. Fu - he esea che s can also s udy he opic o non- ax incen i es oge he wi h he sus ain- abili y o MSMEs since he cu en a iables explained abou 46.1% and he emaining 53.9% a ia ion on he g ow h o MSEs ha we e no inco po a ed in he cu en s udy. The impac o he COVID-19 pandemic on he o e all pe o mance o MSMEs should be u he in es iga ed wi h a combina ion o mone a y incen i es and non-mone a y incen i es o be mo e con iden in his s udy. Au ho s’ in o ma ion M . Kanbi o O kaido Deygan o has ea ned he MBA in Finance in 2017 G.C. Cu en ly, he was wo king a Dilla Uni e si y as a lec u e and esea che in he Depa men o Accoun ing and Finance. He has been published abou 20 a icles in a eas o accoun ing, audi ing, small business en e p ise pe o mance, capi al s uc u e, public inance and axa ion, and c edi isk managemen on di e en epu able jou nals wi h 53 ci a ions coun ed on he google schola websi e. Abb e ia ions COVID-19: Co ona i us disease; MSMEs: Mic o, small and medium-sized en e p ises; IDB: In e -Ame ican De elopmen Bank; SDGs: Sus ainable de elopmen goals. Acknowledgemen s The au ho much hono ed o app ecia e Dilla Uni e si y which is he bes educa ional ins i u ion in E hiopia ha s i es o se e he communi y and suppo p oblem-sol ing esea ches ho oughly. He also hanks he edi o s and he anony- mous e iewe s o hei guidance in de eloping his esea ch pape . Au ho s’ con ibu ions The au ho has ca ied ou all he whole wo ks o his s udy. He designed he s udy esea ch design and ca ied ou he ieldwo k, documen analysis, li e a u e wo k, manusc ip d a , and edi o ial. He unde ook his s udy. The au ho also ead and app o ed he inal manusc ip . Funding This s udy was conduc ed by he au ho inance only. The e is no inancial suppo om any o ganiza ion. A ailabili y o da a and ma e ials The da a a e included in his manusc ip . Decla a ions E hics app o al and consen o pa icipa e No applicable since his esea ch did no in ol e human subjec s. Page 22 o 22 Deygan o Jou nal o Inno a ion and En ep eneu ship (2022) 11:8 Consen o publica ion No applicable. Compe ing in e es s The au ho decla e ha he e a e no compe ing in e es s. Recei ed: 14 Decembe 2020 Accep ed: 12 Janua y 2022 Re e ences Agyapong, D. (2010). Mic o, small, and medium en e p ises’ ac i i ies, income le el, and po e y educ ion in Ghana—A syn hesis o ela ed li e a u e. In e na ional Jou nal o Business and Managemen , 5(12), 196. Ahmedo a, S. (2015). Fac o s o inc easing he compe i i eness o small and medium-sized en e p ises (SMEs) in Bul- ga ia. P ocedia-Social and Beha io al Sciences, 195, 1104–1112. Alene, E. T. 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