Tax non-compliance among SMCs in Malaysia: tax audit evidence

Abstract

Purpose – The pervasiveness of tax non-compliance remains a serious concern to most tax authorities around the world. The negative impact of tax non-compliance on the economy and the evolving nature of the Malaysian corporate tax system have motivated this study. The purpose of this paper is to examine the determinants of corporate tax non-compliance among small-and-medium-sized corporations (SMCs) in Malaysia. Design/methodology/approach – This study used economic deterrence theory to analyze and test 375 tax-audited cases finalized by the Inland Revenue Board of Malaysia in 2011. Findings – Multiple regression results revealed that marginal tax rate, company size and types of industry exerted significant effects on corporate tax non-compliance. The services and construction industries were noted to be the predominant industries engaged in tax non-compliance. The amount of concealed income unearthed during tax audit indicates clearly that there is widespread tax non-compliance in Malaysia and the quantum of tax lost through tax non-compliance is quite high. Research limitations/implications – This study only sampled SMCs audited in 2011, hence, care has been exercised in generalizing the findings. Practical implications – This study affirms that marginal tax rate, company size and types of industry are the main factors influencing compliance behavior of SMCs. The findings provide important insights not only to the Malaysian tax authority, but also to tax authorities and tax researchers in other parts of the world given that tax non-compliance of SMCs is a prevalent and universal problem. For example, with regard to the finding that marginal tax rate and company size are linked to non-compliance, it can be surmised that tax authorities ought to divert resources to firms with such characteristics when conducting audits. Originality/value – Most tax research tax examining corporate tax non-compliance used financial data from annual reports to predict tax non-compliance, which are not very accurate. This study used actual tax audit cases obtained from the tax authority which are reflective of the actual situation. This study complements the scant existing literature by empirically evaluating the factors that influenced corporate tax non-compliance in a developing country like Malaysia.

GST fraud prevention to ensure business sustainability: a Malaysian case study

“…Many previous studies on the Malaysian GST focused exclusively on the determinants of GST. For example, previous works investigated the awareness of and preparedness for, GST (Ching et al, 2017), GST governance (Sanusi et al, 2015;Chen and Taib, 2017) and the effectiveness of GST implementation (Ling et al, 2016;Mohd Yusof et al, 2014). So far, only a few studies have examined the prevention strategies for GST fraud.…”

“…GST) are still insufficient. According to Mohd Yusof et al (2014), very few studies on tax noncompliance in Malaysia have examined the factors that could lead to tax fraud or noncompliance, such as penalty rate, marginal tax rate, foreign ownership, financial liquidity, company size and industry type. As for studies on GST compliance, studies such as Ling et al (2016) examined GST compliance among Malaysian consumers.…”

Factors Affecting Tax Compliance among Malaysian SMEs in E-Commerce Business

“…Many studies has defined the element of compliance or non-compliance differently (Fauziati et al, 2016). However, Azrina et al (2014) noted that there is no standard definition for tax non-compliance. The simple definition of tax compliance is the degree to which taxpayers comply with the tax law.…”

Sintesis Sistem Akuntansi Perpajakan

“…Kepatuhan merupakan kunci sukses sistem pemungutan self assesment system. Secara luas, ketidakpatuhan pajak terbagi ke dalam empat jenis yaitu keenggan an untuk membayar pajak penghasilan, tidak melaporkan penghasilan kena pajak, melebih-lebihkan klaim pajak seperti pengecualian yang dikenakan pajak, dan pembayaran kewajiban pajak yang tidak tepat waktu (Lee, 2017;Rosid, Evans, & Tran-Nam, 2018;Yusof, Ling, & Wah, 2014). Ciri-ciri tersebut merupakan ketidakpatuhan yang disengaja (Intentional compliance) di mana wajib pajak sengaja melanggar peraturan pajak untuk keuntungan pribadi nya.…”