Can digital transformation be a “powerful tool” to curb corporate tax avoidance? Mechanism analysis and policy implications based on Chinese data

Abstract

In the economic downturn, enterprises often adopt tax avoidance to relieve operational pressure and increase profits, yet this undermines national tax revenues and economic balance. This paper explores whether China's promotion of corporate digital transformation can mitigate tax avoidance and balance macro tax revenues with micro corporate performance. Using data of Chinese listed firms from 2012 - 2022, the study finds that digital transformation significantly restrains tax avoidance and benefits the macro tax environment. The internal mechanism shows that downside risk, management emotional tone, and political cost act as key mediators. Digital transformation reduces tax avoidance impulses by cutting downside risk and political costs, though it may also strengthen management emotional tone, spurring more aggressive tax avoidance tendencies. Additionally, digital transformation notably reduces tax avoidance across enterprises, especially for small and medium enterprises and non-state holding enterprises. Overall, the research offers practical guidance for the government and enriches the theoretical understanding of digital transformation and tax avoidance.

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