Divergence in effective tax rates: Evidence in Malaysian listed firms

Ravichandaran Subramaniam, Thenesh Kannaa

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    This paper examines whether Malaysian firms are complying with income tax laws and paying appropriate income taxes. The study explores the divergence in effective tax rates (ETRs) among firms listed on the stock exchange referred to as the Bursa Saham Malaysia (also know as the Malaysian Stock Exchange ). We used Compustat data for the eight years from 2005 to 2012 (inclusive). Our initial search produces 8,117 firm-year observations. After data cleaning, our sample consisted of 752 observations, dividing income tax expense by profit before tax (PBT), more than half of the firms had an ETR either below 20 per cent or above 30 per cent, which represents a significant variation from the statutory tax rate of 25 per cent. Policy setters should specifically focus on type of industry and size and tax practitioners should focus on the tax planning gaps among the sectors listed.
    Original languageEnglish
    Pages (from-to)65 - 79
    Number of pages15
    JournalAsia Pacific Journal of Taxation
    Issue number1
    Publication statusPublished - 2015

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