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

Fairus Halizam A Hamzah (), Nadiah Abd Hamid (), Siti Noor Hayati Mohamed Zawawi (), Rohayu Yusup () and Norazah Md Azali ()
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Fairus Halizam A Hamzah: Faculty of Accountancy, Universiti Teknologi MARA
Nadiah Abd Hamid: Faculty of Accountancy, Universiti Teknologi MARA
Siti Noor Hayati Mohamed Zawawi: Faculty of Accountancy, Universiti Teknologi MARA
Rohayu Yusup: Faculty of Accountancy, Universiti Teknologi MARA
Norazah Md Azali: Faculty of Accountancy, Universiti Teknologi MARA

Malaysian Journal of Economic Studies, 2020, vol. 57, issue 2, 325-342

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.

Keywords: Corporate governance; firm characteristics; tax auditing; tax incentives; taxation (search for similar items in EconPapers)
JEL-codes: E62 G3 H32 M42 (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:mjr:journl:v:57:y:2020:i:2:p:325-342

DOI: 10.22452/MJES.vol57no2.8

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