Tax Holidays and Tax Noncompliance: An Empirical Study of Corporate Tax Audits in China's Developing Economy

2000 ◽  
Vol 75 (4) ◽  
pp. 469-484 ◽  
Author(s):  
K. Hung Chan ◽  
Phyllis Lai Lan Mo
Keyword(s):  
Developing Economies ◽  
Developing Economy ◽  
Corporate Tax ◽  
Foreign Investors ◽  
Tax Rate ◽  
Service Oriented ◽  
Tax Audit ◽  
Tax Holidays ◽  
Tax Noncompliance ◽  
Tax Holiday

Many developing economies use tax holidays to attract foreign investment by providing a limited period of tax exemptions and reductions for qualified investors. This paper investigates the effect of tax holidays on foreign investors' tax noncompliance behavior in China's developing economy. We measure noncompliance in terms of tax audit adjustments the Chinese tax authorities require in response to avoidance and evasion. The results indicate that a company's tax-holiday position affects noncompliance. Companies are least compliant before entering a tax holiday, and most compliant while in a tax-exemption period. In addition, domestic market-oriented companies, service-oriented companies, and joint ventures are less compliant than export-oriented companies, manufacturing-oriented companies, and wholly foreign-owned enterprises, respectively. Our evidence is relevant to policymakers designing tax incentives to attract foreign investors. Our evidence on noncompliance should also help tax authorities and field auditors plan more effective and efficient tax audits. In addition, the results should provide researchers an interesting perspective to study the effect of tax-rate incentives on corporate tax noncompliance.

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

2014 ◽  
Vol 15 (2) ◽  
pp. 215-234 ◽  
Author(s):  
Nor Azrina Mohd Yusof ◽  
Lai Ming Ling ◽  
Yap Bee Wah
Keyword(s):  
Negative Impact ◽  
Annual Reports ◽  
Company Size ◽  
Corporate Tax ◽  
Marginal Tax Rate ◽  
Content Type ◽  
Tax Rate ◽  
The World ◽  
Tax Audit ◽  
Tax Research

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.

The Impact of Firm Characteristics on Book-Tax-Conforming and Book-Tax-Difference Audit Adjustments

2002 ◽  
Vol 24 (2) ◽  
pp. 18-34 ◽  
Author(s):  
K. Hung Chan ◽  
Phyllis L. L. Mo
Keyword(s):  
Developing Economies ◽  
High Tech ◽  
Firm Characteristics ◽  
Differential Impact ◽  
Policy Makers ◽  
Audit Data ◽  
Tax Laws ◽  
Tax Audit ◽  
The Impact ◽  
Tax Noncompliance

This study empirically investigates the differential impact of firm characteristics on book-tax-conforming and book-tax-difference noncompliance. Tax noncompliance is measured in terms of tax audit adjustments made by tax authorities in response to the violation of tax laws. We decompose the tax audit adjustments into book-tax-conforming adjustments (adjustments that affect both book and tax incomes) and book-tax-difference adjustments (adjustments that affect only tax income) using archival tax audit data. Based on the decomposed noncompliance, we explicitly examine the tax and nontax cost trade-off for exporters and high-tech companies when they underreport both book and tax incomes. Our results indicate that export-oriented and high-tech companies, respectively, have larger book-tax-conforming adjustments but smaller book-tax-difference adjustments than domestic-market-oriented and non-high-tech companies. Our study contributes to the literature by further explaining the determinants of corporate-tax noncompliance, and is the first to provide archival evidence of tax noncompliance on such a decomposed basis. These archival evidences on noncompliance help us understand more about the incentives or disincentives for corporations to comply with tax laws. Our results also offer guidance for public policy makers, especially those in developing economies, to design their tax policies to attract foreign investment, and for tax authorities to plan more effective and efficient tax audits.

scholarly journals The Quantification of the Significance of EATR Determinants: Evidence for EU Countries

2017 ◽  
Vol 65 (2) ◽  
pp. 501-510
Author(s):  
Jan Široký ◽  
Danuše Nerudová ◽  
Veronika Dvořáková
Keyword(s):  
Tax Burden ◽  
Investment Incentives ◽  
Panel Analysis ◽  
Tax Rates ◽  
Corporate Tax ◽  
Tax Rate ◽  
Eu Member States ◽  
Loss Compensation ◽  
Corporate Tax Rates ◽  
Tax Holidays

At present, corporate tax is applied in all EU Member States with the exception of Estonia. Nevertheless, the nominal corporate tax rate does not reflect the real tax burden. For determination of the effective tax burden for corporations, there are used effective corporate tax rates. The aim of the paper is to quantify the relation between the effective average corporate tax rate and nominal corporate tax rates, depreciations, loss compensation and selected investment incentives and to identify the significance of these factors based on the panel analysis. Based on the panel analysis it was found that effective average tax rate is only statistically dependant on nominal corporate tax rate, on tax loss compensation and on the depreciation tax rate of movable property, while in case of other factors, such as depreciation of immovable property, tax holidays and R&D incentives, the dependence is not statistically significant.

scholarly journals EFFECT OF FOREIGN INVOLVEMENT ON CORPORATE TAX NONCOMPLIANCE

2021 ◽  
Vol 3 (Number 1) ◽  
pp. 23-32
Author(s):  
Salami Suleiman
Keyword(s):  
Data Availability ◽  
Corporate Tax ◽  
Effective Tax Rate ◽  
Tax Rate ◽  
Negative Effect ◽  
Accounting Principle ◽  
The Cost ◽  
Foreign Directors ◽  
The Impact ◽  
Tax Noncompliance

There exists a potential decline in tax revenue to government among firms with foreign involvement. The main aim of the study is to examine the impact of foreign involvement on corporate tax noncompliance. The study focuses on the effects of foreign CEO, the percentage of foreign executive board members, and the ratio of stocks owned by foreign directors on corporate tax noncompliance. Data on manufacturing firms were utilized based on data availability from 2015 to 2019. Generally accepted accounting principle effective tax rate was utilized as a primary measure of tax noncompliance and fixed effect technique of regression analysis. Controlling for profitability, leverage, firm size and board size, the findings of the study revealed a significant negative effect of the percentage of foreign executives’ shareholding on GAAP ETR. Our result is robust to using cash effective tax rate as an alternative proxy for tax noncompliance. The implication of this finding is that an increase in foreign executive shares will reduce tax proceeds. Given the corporate tax implication, regulatory authorities should weigh the cost and benefit of a benchmark for foreign directors’ equity ownership.

Diffusion and Adoption of Corruption in Developing Economies: Evidence from Ghana

2018 ◽  
Vol 6 (6) ◽  
pp. 21
Author(s):  
Solomon A. Keelson ◽  
Thomas Cudjoe ◽  
Manteaw Joy Tenkoran
Keyword(s):  
Social Values ◽  
Developing Economies ◽  
Policy Formulation ◽  
Institutional Factors ◽  
Developing Economy ◽  
Theoretical Underpinning ◽  
Institutional Failure ◽  
The Social ◽  
The Relationship ◽  
And Diffusion

The present study investigates diffusion and adoption of corruption and factors that influence the rate of adoption of corruption in Ghana. In the current study, the diffusion and adoption of corruption and the factors that influence the speed with which corruption spreads in society is examined within Ghana as a developing economy. Data from public sector workers in Ghana are used to conduct the study. Our findings based on the results from One Sample T-Test suggest that corruption is perceived to be high in Ghana and diffusion and adoption of corruption has witnessed appreciative increases. Social and institutional factors seem to have a larger influence on the rate of corruption adoption than other factors. These findings indicate the need for theoretical underpinning in policy formulation to face corruption by incorporating the relationship between the social values and institutional failure, as represented by the rate of corruption adoption in developing economies.

The Effect of Tax Holiday on Investment Decisions: Some Comments

1975 ◽  
Vol 14 (2) ◽  
pp. 245-248
Author(s):  
A. R. Kemal
Keyword(s):  
Empirical Analysis ◽  
Investment Decisions ◽  
Private Investment ◽  
Point Of View ◽  
Development Review ◽  
Interesting Article ◽  
Methodological Problems ◽  
Tax Holidays ◽  
Tax Holiday

In the Winter 1974 issue of the Pakistan Development Review, Messrs: Azhar and Sharif have published an article entitled "The Effects of Tax Holiday on Invest¬ment Decisions: An Empirical Analysis." It was an interesting article in a very useful area of research. Apart from other subsidies, tax holidays are granted to encourage investment generally, but in certain areas particularly. Thus a study -on tax holiday is important from the policy point of view as it helps decide whether to reintroduce the tax holiday policy which was abolished in 1972. Unfortunately, there are some conceptual and methodological problems in the study so that the results presented by Azhar and Sharif are rather suspect. However, before taking up these problems, let it be pointed out that the conclusions drawn by Azhar and Sharif regarding ineffectiveness of the tax holiday policy in encouraging private investment is not quite correct. Their study showed that 20 percent of firms would not have invested if they had not been granted tax holidays. A policy which en¬courages investment by 20 percent cannot be called ineffective. Before drawing any such conclusions, one is advised to look at the relative effectivenesses of different investment-promoting policies.

Moderating role of patriotism on sales tax compliance among Jordanian SMEs

2020 ◽  
Vol 13 (3) ◽  
pp. 389-415 ◽  
Author(s):  
Ahmad Farhan Alshira'h ◽  
Hijattulah Abdul-Jabbar
Keyword(s):  
Tax Compliance ◽  
Arab Countries ◽  
Moderating Effect ◽  
Theory And Practice ◽  
Sales Tax ◽  
Deterrence Theory ◽  
Content Type ◽  
Tax Rate ◽  
Tax Audit ◽  
The Impact

Purpose The purpose of this paper is to investigate the impact of tax audit, tax rate and tax penalty on sales tax compliance and examine the moderating effect of patriotism on the associations between tax audit, tax rate and tax penalty with sales tax compliance among Jordanian manufacturing small- and medium-sized enterprises (SMEs). Design/methodology/approach In this study, 660 questionnaires were distributed by using systematic random sampling to manufacturing SMEs in Jordan, after which a total of 385 useable questionnaires were deemed suitable for analysis. Partial least squares structural equation modelling (PLS-SEM) was used to validate the measurement model and structural model and the predictive relevance of the study’s model. Findings The findings showed that tax audit and tax penalty were positively associated with the level of sales tax compliance, whereas tax rate was insignificantly associated with sales tax compliance. They also demonstrated the moderating significant effect of patriotism on the relationship between tax penalty, tax audit and tax rate with sales tax compliance. Research limitations/implications Tax authorities and policymakers in developing majority societies in developing countries and in other Arab countries, especially in Jordan may use the results to focus their interest on the formulation of policies founded on the outcomes of the study to strengthen eligible SMEs to comply to further boost their sales collections. Originality/value This study extends the deterrence theory in the context of sales tax compliance by proposing the moderating effect of patriotism in the deterrence theory on sales tax compliance among SMEs. Moreover, the suitability for the use of PLS-SEM as a statistical tool in investigating the extended deterrence theory with patriotism as a moderating variable as well as its implications for theory and practice was also discussed.

Ireland faces economic uncertainty with OECD reforms

2021 ◽  
Keyword(s):  
Tax Revenue ◽  
Economic Uncertainty ◽  
Corporate Tax ◽  
Content Type ◽  
Tax Rate ◽  
Sinn Fein ◽  
Fiscal Spending

Significance This framework laid out two pillars of reform. Pillar One would see large companies liable for tax in the end-market jurisdiction where their goods or services are used or consumed. Pillar Two would set a minimum tax rate of 15%. Impacts Ireland will probably support the reforms by October, and in return it may get some concessions over implementation or sectoral coverage. Reduced corporate tax revenue may result in tighter fiscal spending, which would play into the hands of the opposition Sinn Fein. The corporate tax proposals come at a particularly bad time for the Irish economy, which is already facing the consequences of Brexit.

Impact of COVID-19 pandemic on indigenous contractors in a developing economy

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Nathaniel Ayinde Olatunde ◽  
Imoleayo Abraham Awodele ◽  
Bosede Olajumoke Adebayo
Keyword(s):  
Developing Economies ◽  
Sampling Technique ◽  
Structured Interview ◽  
Additional Cost ◽  
Developing Economy ◽  
Content Type ◽  
Construction Contracts ◽  
The Government ◽  
And Performance ◽  
The Impact

Purpose The purpose of this study is to examine the impact of coronavirus disease 2019 (COVID-19) on indigenous contractors in a developing economy with a view to enhancing their performance. Design/methodology/approach The study used a purposive sampling technique to select 37 indigenous contractors with ongoing construction contracts in Osun State, Nigeria who provided data for the study. A structured interview protocol was used to elicit the required information from the interviewees and frequency, percentage and content analysis were used for data analysis. Findings The results showed that the critical impact of COVID-19 on indigenous contractors in a developing economy is: time overrun, loss of profit and creation of dispute. Further results showed that other impacts are a disruption in supply of labour, locally sourced materials are with additional cost, the additional cost of implementing COVID-19 protocols, difficulty in sourcing imported materials and absence of new jobs with the corresponding retrenchment of workers. Practical implications The study recommended special palliatives for the indigenous contractors from the government so as to cushion the impact of the pandemic on them, thereby enhance their survival and performance. A special arbitration panel is set up in each state of the federation to look at disputes arising from the aftermath of the pandemic, this is with a view to adequately compensate indigenous contractors with genuine and properly compiled claims. inferring from the findings of the study, it suffices to say that the severity of the impact of the pandemic is very high on indigenous contractors in developing economies, as such a better preparedness strategy could lessen the impact of such pandemic in the future. Originality/value The study is an attempt to unearth the impact of COVID-19 on indigenous contractors with ongoing construction contracts in a developing economy. The study will be of value to construction stakeholders in providing the information needed to devise strategies to minimise the impact of a pandemic on indigenous contractors in future projects thereby enhance their performance.

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