Tax noncompliance among small and medium-enterprises in Malaysia: evidence from finalized tax audited cases

This study attempts to examine the extent of corporate tax noncompliance among small and medium enterprises (SMEs) in Malaysia. The main objective is to examine the determinants of corporate tax noncompliance among SMEs in Malaysia. To achieve this objective, the study utilized archival data gathered from the Inland Revenue Board of Malaysia (IRBM). The study used 282 tax audited cases finalized in 2011. Upon checking, this study found that the IRBM collected about RM39, 413,789.19 of additional taxes and penalties from corporate tax noncompliance in 2011. This study found that the construction industry was the most predominant industry engaged in tax noncompliance. Multiple regression results revealed that marginal tax rate and company size were found to be significant determinants of corporate tax noncompliance. The results support the economic deterrence theory which suggests that tax rate does influence taxpayers' behavior. Notably, penalty rates, financial liquidity, and foreign ownership have no significant correlation to corporate tax noncompliance. This study also found that there was no significant difference between types of industry and tax noncompliance. The study contributes to the tax compliance literature by testing the applicability of the economic deterrence theory in the context of the Malaysian tax setting. The findings can provide some insights to the IRBM in developing strategies to facilitate more voluntary compliance in the future.