The Relationship between Tax Planning and Financial Performance Indicators: An Applied Study in the Hotel Sector

Tax planning is a financial tool companies use to reduce their tax liabilities, which in turn affects their financial performance. However, results from prior studies testing the direction of this effect varied between positive and negative. Accordingly, the current study sought to analyze the impact of tax planning (measured using both the book-tax difference and the non-debt tax shield) on firms' financial performance (measured using three indicators: return on assets, return on equity, and Tobin’s Q) in an attempt to clarify the nature and direction of this impact for companies operating in Iraq. The study included a sample of hotels listed on the Iraqi Stock Exchange from 2007 to 2023, comprising 110 observations. A Weighted Least Squares Regression (WLS) was used to study the relationship between the variables. The results showed a significant and positive effect of the book-tax difference on the financial performance of the hotels in the study sample. The Non-Debt Tax Shield measure had a significant negative impact on the financial performance of the hotels in the study sample. It also confirmed the existence of a one-way significant impact relationship between tax planning and financial performance. The study recommends that hotels seek tax advisory services from experts in the field to improve the effectiveness of their tax planning, given the negative effects observed on their financial performance. In addition, the study emphasizes the need to strengthen and modernize Iraq's tax system infrastructure to simplify tax procedures and activate the collection system to improve tax revenues.