Corporate tax avoidance and the roles of the risk management committee: a Malaysian perspective

Taxation plays a critical role in the economic development of developing countries such as Malaysia, as it constitutes the primary source of government revenue used to finance public services and national development. Nevertheless, the effectiveness of the taxation system may be undermined by corporate tax avoidance (CTA), which refers to the strategic use of legal tax planning practices by corporations to minimise their tax liabilities. Although tax avoidance is generally considered legal, excessive avoidance activities can reduce government revenue and weaken the efficiency of the taxation system, thereby raising concerns regarding transparency, accountability, and corporate governance among publicly listed companies. Within this context, this study examines the level of corporate tax avoidance among 124 Malaysian listed companies by employing the Current Effective Tax Rate (CETR) as a proxy measure. Specifically, the study investigates the relationship between corporate tax avoidance within a corporate governance framework by focusing on the effectiveness of the Risk Management Committee (RMC). Specifically, this study also further explores key RMC attributes, namely independence, size, knowledge and experience, gender diversity, and meeting frequency, to determine their influence on CTA. Furthermore, the moderating role of audit quality as an external governance mechanism is examined to assess whether it strengthens the relationship between RMC effectiveness and CTA. The findings indicate that CTA among Malaysian listed companies is at a moderate level. Among the RMC attributes examined, knowledge and experience, as well as meeting frequency, are found to play a significant role in mitigating CTA compared to other attributes. Furthermore, the study investigates the moderating effect of audit quality on the relationship between RMC effectiveness and CTA. The findings suggest that neither RMC effectiveness nor audit quality alone is sufficient to yield a statistically significant reduction in CTA. However, the results imply that the simultaneous presence of both internal governance mechanisms, such as RMC effectiveness and external oversight through audit quality, may collectively enhance corporate oversight. Thus, these findings highlight the complexity of CTA and suggest that improving both the internal corporate governance structures and external audit processes may contribute to more effective mitigation of CTA in Malaysia’s listed companies.