K34 - Tax LawReturn

Changes in legal regulations are a permanent element of political systems. The degree of complexity of tax systems is a characteristic feature of developing countries. The study aims to check whether changes in legal regulations cause manipulations in companies' financial data. Manipulations may result from the ambiguity of the introduced regulations (unintentional) or the deliberate actions of taxpayers (intentional). The study analyses the impact of changes in reporting information on tax income from capital sources on anomalies in financial data. In the survey, anomalies in economic data are identified using Benford's Law, using MAD (mean absolute deviation). The research sample included Polish companies reporting income information. Based on the study results, it can be concluded that the introduction of the obligation to separately report tax from capital sources caused anomalies in the distributions of digits (2-digit test) in the group of companies affected by this change. In the case of companies not generating income from capital gains in 2018–2019, the matching of the distributions was consistent. In 2020, it was at an acceptable level with the Benford distribution. The research indicates the possibility of using Benford's Law to reveal difficulties in determining tax revenues, mainly due to changes in legal regulations.
Implications for Central European audience: The article deals with the issue of detecting difficulties related to changes in legal regulations in a CEE country - Poland. The introduction of new legal regulations, including those related to income tax, is closely related to the policy of a given country. In CEE countries, introducing new tax restrictions is essential to state policy. Changing the regulations alone is not sufficient. Only effective enforcement of the Law allows the achievement of the intended goals of state policy. The proposed tool for examining the effects of changes in legal regulations will allow for assessing the effectiveness of the introduced new solutions. Additionally, the study's results can be used to detect anomalies in financial data in the Czech Republic. Based on the TCI (Tax Complexity Index) analysis, Poland and the Czech Republic have the most complicated tax system in the Visegrad Group countries. In the 2022 ranking, out of 100 countries included in the TCI index, Poland ranks 63rd and the Czech Republic 55th in Tax Code Complexity.