Tax avoidance may result in a substantial loss of government revenue and detract from the planning of national growth. Companies employ a variety of tax avoidance schemes to evade tax, and companies from different industries may have varying tax incentives and degrees of tax avoidance practices. Therefore, this study investigates tax avoidance activities among companies in different sectors in Malaysia. It also seeks to examine the impact of the code of corporate governance on tax avoidance activities. This study uses four proxies to measure tax avoidance; Accounting ETR (AETR), Cash ETR (CETR), Tax Expenses to Operating Cash Flow (TECF), and Cash Paid to Operating Cash Flow (CPCF). Using a sample of listed companies in Bursa Malaysia from 2005-2015, this study discovers that tax avoidance activities are significantly affected by the industrial sectors. The result finds that manufacturing companies, Infrastructure Project Companies (IPC) and hotels pay significantly lower effective tax compared to the other companies in different sectors. Additionally, the study also finds evidence that the code of corporate governance in 2012 has significantly been successful in mitigating the tax avoidance activities among listed companies in Malaysia. It contributes to the literature by providing empirical evidence on the influences of Malaysian Industrial Master Plan 3 on companies' tax avoidance activities.
Abdul Wahab, E. A., Ariff, A. M., Marzuki, M., & Sanusi, M. Z. (2017). Political connections, corporate governance, and tax aggressiveness in Malaysia. Asian Review of Accounting, 25(3), 424-451.
Abidin, A. F. Z., Hashim, H. A., & Ariff, A. M. (2017). Ethical commitments and financial performance: Evidence from publicly listed companies in Malaysia. Asian Academy of Management Journal, 22(2), 53–95
Haji, A. (2014). The relationship between corporate governance attributes and firm performance before and after the revised code: Some Malaysian evidence. International Journal of Commerce and Management, 24(2), 134-151.
Annuar, H. A., Salihu, I. A., & Obid, S. N. S. (2014). Corporate ownership, governance and tax avoidance: An interactive effect. Procedia-Social and Behavioral Sciences, 164, 150-160.
Bhatt, P. R. (2016). Corporate governance in Malaysia: has MCCG made a difference. International Journal of Law and Management, 58(4), 403-415.
Bradshaw, M., Liao, G., & Ma, M. S. (2012). State ownership, tax and political promotion: Evidence from China. In Tel Aviv University Accounting Research Conference.
Chan, K. H., Mo, P. L., & Zhou, A. Y. (2013). Government ownership, corporate governance and tax aggressiveness: evidence from China. Accounting & Finance, 53(4), 1029-1051.
Derashid, C., & Zhang, H. (2003). Effective tax rates and the "industrial policy" hypothesis: Evidence from Malaysia. Journal of International Accounting, Auditing and Taxation, 12(1), 45–62
Desai, M. A., Dick, A., and Zingales, L. (2007). Theft and taxation. Journal of Financial Economics, 84(3), 591–623
Hanlon, M., & Slemrod, J. (2009). What does tax aggressiveness signal? Evidence from stock price reactions to news about tax shelter involvement. Journal of Public Economics, 93(1-2), 126-141.
Kholbadalov, U. (2012). The relationship of corporate tax avoidance, cost of debt and institutional ownership: evidence from Malaysia. Atlantic Review of Economics: Revista Atlántica de Economía, 2(1), 7-36.
Kim, K. A., & Limpaphayom, P. (1998). Taxes and firm size in Pacific-Basin emerging economies. Journal of International Accounting, Auditing and Taxation, 7(1), 47-68.
Kinuthia, B. K. (2009). Industrialisation in Malaysia: changing role of government and foreign firms. In DEGIT XIV Conference Paper.
Liang, Q., Li, Q., Lu, M., & Shan, Y. (2021). Industry and geographic peer effects on corporate tax avoidance: Evidence from China. Pacific Basin Finance Journal, 67(March), 101545.
Lisowsky, P. (2010) Seeking shelter: Empirically modeling tax shelters using financial statement information. The Accounting Review, 85(5), 1693–1720.
Mahenthiran, S., & Kasipillai, J. (2012). Influence of ownership structure and corporate governance on effective tax rates and tax planning: Malaysian evidence. Austl. Tax F., 27, 941.
Mahmud, N. M., Mohamed, I. S., Arshad, R., & Reskino. (2021). Board characteristics and disclosure of corporate anti-corruption policies. Management and Accounting Review, 20(2), 209–229.
Menon, J. (2008), Macroeconomic Management Amid Ethnic Diversity: Fifty Years of Malaysian Experience, Development Paper No 102. Asian Development Bank Institute
Mills, L., Erickson, M. M., & Maydew, E. L. (1998). Investments in tax planning. The Journal of the American Taxation Association, 20(1), 1.
Noor, R. M., Mastuki, N. A., & Bardai, B. (2008). Corporate effective tax rates: a study on Malaysian public listed companies. Malaysian Accounting Review, 7(1).
Rahim, M. F. A., Johari, R. J., & Takril, N. F. (2015). Revisited note on corporate governance and quality of audit committee: Malaysian perspective. Procedia Economics and Finance, 28, 213-221.
Rego, S., and Wilson, R. (2012), "Equity risk incentives and corporate tax avoidance", Journal of Accounting Research, Vol. 50 No. 3, pp. 775-809
Saari, S., Suffian, M. T. M., Ghafar, M. S. A., & Azhari, M. I. M. (2020). The relationship between audit committee effectiveness and the level of corporate risk disclosure: The relevance of pre-and post-mccg 2012. Management and Accounting Review, 19(1), 267–295.
Salihu, I. A., Normala, S. O., and Annuar, H. A. (2014). Government Ownership and Corporate Tax Avoidance: Empirical Evidence from Malaysia, Proceedings Book of ICETSR, Malaysia Handbook on the Emerging Trends in Scientific Research.
Surendran, S. (2021). Greater emphasis on board appointments in revised corporate governance code. The Edge Markets, 1–4. https://www.theedgemarkets.com/article/greater-emphasis-board-appointments-revised-corporate-governance-code
Wang, F., Xu, S., and Sun, J. (2020) Corporate tax avoidance: a literature review and research agenda. Journal of Economic Surveys, 34(4), 793–811.
Ariffin, Z. (2012). The influence of industry affiliation on corporate tax avoidance in Malaysia. 2(2), 1–17.
Zhang, T., Zhang, X., & Yang, D. (2021). Does industrial policy suppress corporate tax avoidance? A study on the perspective of provincial industrial policy. China Journal of Accounting Studies, 9(2), 143–167.
Zin, S. F. B. M., Marzuki, M. M., & Abdulatiff, N. K. H. (2020). The likelihood of fraudulent financial reporting: The new implementation of Malaysian code of corporate governance (MCCG) 2017. International Journal of Financial Research, 11(3), 84–91.
In-Text Citation: (Mahmud et al., 2022)
To Cite this Article: Mahmud, N. M., Kamaruddin, N. N. A. N., Adam, A., Raman, S. A., & Shaari, S. N. M. (2022). The Influence of The Industrial Sector and Reviewed Corporate Governance Code on Tax Avoidance Practices in Malaysia. International Journal of Academic Research in Accounting Finance and Management Sciences, 12(3), 419–429.
