1997 Volume 5 Issue 1 Pages 15-28
In the economic evaluation of investment projects, one of relevant considerations is the impact of taxation. Especially, the impact of corporate income taxes, which vary with the corporate taxable income, should be considered. To compute the amount of the taxes from the project effectively, the effective taxe rate is used. Therefore, it is also an important factor in the economic evaluation of investment projects. The traditional method of computing effective tax rate, however, does not reflect the present taxation system in Japan, principally, the prepayment system of taxes. The purpose of this paper is to:
(1) show the method of computing effective tax rate which reflects present taxation system; and
(2) compare the proposed method with the traditional method.
We can conclude that, the traditional method makes large errors concerning the estimation of taxes from the project, when the discount rate is relatively high, or when the difference of taxable income before corporate enterprise tax between the first half and the latter half of the year is large.
