Indicators of Tax Authority Monitoring: Firm Characteristics, Tax Avoidance and Reinvestment Allowance Utilisation

  • Fairus Halizam A Hamzah Universiti Teknologi MARA
  • Nadiah Abd Hamid Universiti Teknologi MARA
  • Siti Noor Hayati Mohamed Zawawi Universiti Teknologi MARA
  • Rohayu Yusup Universiti Teknologi MARA
  • Norazah Md Azali Universiti Teknologi MARA

Abstract

The Inland Revenue Board of Malaysia (IRBM) provides a monitoring mechanism of corporate governance through tax audits. However, indicators associated with the tax authority monitoring system remain underexplored due to data confidentiality. This study aims to examine the indicators used by the tax authority in performing tax monitoring where the tax return data of firms that claim reinvestment allowance (RA) were employed alongside the historical audit data of corporate taxpayers of both a tax-monitored firm and an unmonitored tax firm. The results of the analysis reported that the tax authority monitoring system is closely associated with fundamental details disclosed in the tax return namely, assessment year, profitability, scale of operation, firm directorship, tax consultancy and industry type. In contrast, the incidents of tax avoidance and incentive utilisation indicators were not prominent in tax authority monitoring. The investigation of firms that experienced tax monitoring provides insight into indicators which interest tax authorities when it comes to a firm’s tax audit. This research revealed new evidence on IBRM preferred indicators in conducting tax monitoring.

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Author Biographies

Fairus Halizam A Hamzah, Universiti Teknologi MARA

Faculty of Accountancy

Nadiah Abd Hamid, Universiti Teknologi MARA

Faculty of Accountancy

Siti Noor Hayati Mohamed Zawawi, Universiti Teknologi MARA

Faculty of Accountancy

Rohayu Yusup, Universiti Teknologi MARA

Faculty of Accountancy

Norazah Md Azali, Universiti Teknologi MARA

Faculty of Accountancy

Published
2020-12-14
How to Cite
HAMZAH, Fairus Halizam A et al. Indicators of Tax Authority Monitoring: Firm Characteristics, Tax Avoidance and Reinvestment Allowance Utilisation. Malaysian Journal of Economic Studies, [S.l.], v. 57, n. 2, p. 325-342, dec. 2020. ISSN 1511-4554. Available at: <https://mjes.um.edu.my/article/view/27613>. Date accessed: 28 jan. 2021. doi: https://doi.org/10.22452/MJES.vol57no2.8.
Section
Articles