Examining Corporate Tax Evaders: Evidence from the Finalized Audit Cases
This paper aims to (1) analyze the profiles of
transgressors (detected evaders); (2) examine reason(s) that triggered a
tax audit, causes of tax evasion, audit timeframe and tax penalty
charged; and (3) to assess if tax auditors followed the guidelines as
stated in the 'Tax Audit Framework' when conducting tax audits. In
2011, the Inland Revenue Board Malaysia (IRBM) had audited and
finalized 557 company cases. With official permission, data of all the
557 cases were obtained from the IRBM. Of these, a total of 421 cases
with complete information were analyzed. About 58.1% was small and
medium corporations and from the construction industry (32.8%). The
selection for tax audit was based on risk analysis (66.8%), information
from third party (11.1%), and firm with low profitability or fluctuating
profit pattern (7.8%). The three persistent causes of tax evasion by
firms were over claimed expenses (46.8%), fraudulent reporting of
income (38.5%) and overstating purchases (10.5%). These findings
are consistent with past literature. Results showed that tax auditors
took six to 18 months to close audit cases. More than half of tax
evaders were fined 45% on additional tax raised during audit for the
first offence. The study found tax auditors did follow the guidelines in
the 'Tax Audit Framework' in audit selection, settlement and penalty
imposition.
[1] Spicer, M.W. and S.B. Lundstedt, Understanding tax evasion. Public
Finance, 1976. 31: p. 295-305.
[2] Nur-tegin, K., Determinants of business tax compliance. . The B. E
Journal of Economic Analysis & Policy, 2008. 8(1): p. 1-25.
[3] Tanzi, V. and P. Shome, A premier on tax evasion. International
Monetary Fund, 1993. 40(4): p. 807-812.
[4] Alm, J., Measuring, explaining, and controlling tax evasion: lessons from
theory,experiments and field studies International Tax Public Finance,
2012. 19: p. 54-77.
[5] Biagioli, A., Financial crime as a threat to the wealth of nations. A
cost-effectiveness approach. Journal of Money Laundering Control,
2008. 11(1): p. 88-95.
[6] Otusanya, O.J., The role of multinational companies in tax evasion and
tax avoidance: The case of Nigeria. Critical Perspectives on Accounting,
2011. 22(3): p. 316-332.
[7] Franzoni, L.A., Tax evasion and tax compliance, Encyclopedia of Law
and Economic. 1999. p. 53-94.
[8] Mckenzie, R.E., New Tax Gap Estimate. 2012.
[9] Wisegeek, What is the tax gap. 2013.
[10] Personal Communication, Meeting with Chief Executive Officer of
Inland Revenue Board Malaysia Tan Sri Dr. Mohd Shukor Haji Mahfar at
Inland Revenue Board Malaysia, Cyberjaya office, Malaysia. 2013:
Cyberjaya, Malaysia.
[11] The IRBM, Annual Report. 2005, Inland Revenue Board Malaysia.
[12] The IRBM, Minutes of meeting: tax dialogue session 1/2006 between
Inland Revenue Board of Malaysia and professional bodies,14 December
2006. 2007. p. 1-18.
[13] The IRBM, Tax Audit Framework. 2009, Inland Revenue Board
Malaysia.
[14] The IRBM, Annual Report. 2007, Inland Revenue Board Malaysia.
[15] The IRBM, Annual Report. 2008, Inland Revenue Board Malaysia.
[16] The IRBM, Annual Report. 2009, Inland Revenue Board Malaysia.
[17] The IRBM, Annual Report 2010, Inland Revenue Board Malaysia.
[18] Allingham, M.G. and A. Sandmo, Income tax evasion: A theoretical
analysis. Journal of Public Economics. 1972. 1: p. 323-338.
[19] Choong, k.F. and M.L. Lai, Tax audit and tax evasion under the
self-assessment system: Survey evidence in Malaysia. Malayan Law
Journal, 2008. March-April: p. 65-74.
[20] Juahir, M.N., A. Norsiah, and M.S. Norman, Fraudulent financial
reporting and company characteristics: Tax audit evidence. Journal of
Financial Reporting and Accounting, 2010. 8(2): p. 128-142.
[21] Zainal Abidin, M.Y., J. Hasseldine, and D. Paton, An analysis of tax
non-compliance behavior of small and medium-sized corporations in
Malaysia in International Tax Administration: Building Bridges, K. Datt,
B. Tran-Nam, and K. Bain, Editors. 2010, CCH Australia Limited:
Sydney. p. 9-24.
[22] Khadijah, I. and J. Pope, Corporate taxpayers' compliance variables:
Findings from a study of focus groups in Malaysia. , in International Tax
Administration: Building Bridges, K. Datt, B. Tran-Nam, and K. Bain,
Editors. 2010, CCH Australia Limited: Sydney. p. 132-152.
[23] Watts, R.L. and J.L. Zimmerman, Toward a postive theory of
determination of accounting standard. The Accounting Review, 1978. 53:
p. 112-134.
[24] Joulfaian, D. and M. Rider, Differential taxation and tax evasion by small
business. National Tax Journal, 1998. 51(4): p. 675-687.
[1] Spicer, M.W. and S.B. Lundstedt, Understanding tax evasion. Public
Finance, 1976. 31: p. 295-305.
[2] Nur-tegin, K., Determinants of business tax compliance. . The B. E
Journal of Economic Analysis & Policy, 2008. 8(1): p. 1-25.
[3] Tanzi, V. and P. Shome, A premier on tax evasion. International
Monetary Fund, 1993. 40(4): p. 807-812.
[4] Alm, J., Measuring, explaining, and controlling tax evasion: lessons from
theory,experiments and field studies International Tax Public Finance,
2012. 19: p. 54-77.
[5] Biagioli, A., Financial crime as a threat to the wealth of nations. A
cost-effectiveness approach. Journal of Money Laundering Control,
2008. 11(1): p. 88-95.
[6] Otusanya, O.J., The role of multinational companies in tax evasion and
tax avoidance: The case of Nigeria. Critical Perspectives on Accounting,
2011. 22(3): p. 316-332.
[7] Franzoni, L.A., Tax evasion and tax compliance, Encyclopedia of Law
and Economic. 1999. p. 53-94.
[8] Mckenzie, R.E., New Tax Gap Estimate. 2012.
[9] Wisegeek, What is the tax gap. 2013.
[10] Personal Communication, Meeting with Chief Executive Officer of
Inland Revenue Board Malaysia Tan Sri Dr. Mohd Shukor Haji Mahfar at
Inland Revenue Board Malaysia, Cyberjaya office, Malaysia. 2013:
Cyberjaya, Malaysia.
[11] The IRBM, Annual Report. 2005, Inland Revenue Board Malaysia.
[12] The IRBM, Minutes of meeting: tax dialogue session 1/2006 between
Inland Revenue Board of Malaysia and professional bodies,14 December
2006. 2007. p. 1-18.
[13] The IRBM, Tax Audit Framework. 2009, Inland Revenue Board
Malaysia.
[14] The IRBM, Annual Report. 2007, Inland Revenue Board Malaysia.
[15] The IRBM, Annual Report. 2008, Inland Revenue Board Malaysia.
[16] The IRBM, Annual Report. 2009, Inland Revenue Board Malaysia.
[17] The IRBM, Annual Report 2010, Inland Revenue Board Malaysia.
[18] Allingham, M.G. and A. Sandmo, Income tax evasion: A theoretical
analysis. Journal of Public Economics. 1972. 1: p. 323-338.
[19] Choong, k.F. and M.L. Lai, Tax audit and tax evasion under the
self-assessment system: Survey evidence in Malaysia. Malayan Law
Journal, 2008. March-April: p. 65-74.
[20] Juahir, M.N., A. Norsiah, and M.S. Norman, Fraudulent financial
reporting and company characteristics: Tax audit evidence. Journal of
Financial Reporting and Accounting, 2010. 8(2): p. 128-142.
[21] Zainal Abidin, M.Y., J. Hasseldine, and D. Paton, An analysis of tax
non-compliance behavior of small and medium-sized corporations in
Malaysia in International Tax Administration: Building Bridges, K. Datt,
B. Tran-Nam, and K. Bain, Editors. 2010, CCH Australia Limited:
Sydney. p. 9-24.
[22] Khadijah, I. and J. Pope, Corporate taxpayers' compliance variables:
Findings from a study of focus groups in Malaysia. , in International Tax
Administration: Building Bridges, K. Datt, B. Tran-Nam, and K. Bain,
Editors. 2010, CCH Australia Limited: Sydney. p. 132-152.
[23] Watts, R.L. and J.L. Zimmerman, Toward a postive theory of
determination of accounting standard. The Accounting Review, 1978. 53:
p. 112-134.
[24] Joulfaian, D. and M. Rider, Differential taxation and tax evasion by small
business. National Tax Journal, 1998. 51(4): p. 675-687.
@article{"International Journal of Business, Human and Social Sciences:56424", author = "Ming Ling Lai and Zalilawati Yaacob and Normah Omar and Norashikin Abdul Aziz and Bee Wah Yap", title = "Examining Corporate Tax Evaders: Evidence from the Finalized Audit Cases", abstract = "This paper aims to (1) analyze the profiles of
transgressors (detected evaders); (2) examine reason(s) that triggered a
tax audit, causes of tax evasion, audit timeframe and tax penalty
charged; and (3) to assess if tax auditors followed the guidelines as
stated in the 'Tax Audit Framework' when conducting tax audits. In
2011, the Inland Revenue Board Malaysia (IRBM) had audited and
finalized 557 company cases. With official permission, data of all the
557 cases were obtained from the IRBM. Of these, a total of 421 cases
with complete information were analyzed. About 58.1% was small and
medium corporations and from the construction industry (32.8%). The
selection for tax audit was based on risk analysis (66.8%), information
from third party (11.1%), and firm with low profitability or fluctuating
profit pattern (7.8%). The three persistent causes of tax evasion by
firms were over claimed expenses (46.8%), fraudulent reporting of
income (38.5%) and overstating purchases (10.5%). These findings
are consistent with past literature. Results showed that tax auditors
took six to 18 months to close audit cases. More than half of tax
evaders were fined 45% on additional tax raised during audit for the
first offence. The study found tax auditors did follow the guidelines in
the 'Tax Audit Framework' in audit selection, settlement and penalty
imposition.", keywords = "Corporate tax fraud, tax non-compliance, tax evasion, tax audit, fraudulent reporting.", volume = "7", number = "6", pages = "1606-5", }