Corporate Tax Planning: A Study On Corporate Effective Tax Rates of Malaysian Listed Companies

This study attempts to examine corporate effective tax rates (ETRs) of Malaysian public companies listed on Bursa Malaysia during official assessment system and self assessment system tax regimes. The objective is to examine the level of corporate ETRs during official assessment system and self assessment system tax regime and. To achieve the objective, this study uses pooled sample data of 316 companies for the years 1993 to 2006. In determining the two tax regime, the investigation period is classified into two, where the period from 1993 to 2000 represents the official assessment system tax regime whereas the period from 2001 to 2006 represents the self assessment system tax regime. This study finds that corporate ETRs are below the statutory tax rate (STR) in both tax regimes. Moreover, this study reveals that ETRs during the self assessment system tax regime is lower than the official assessment system tax regime. Additionally, this study also examines the determinants of corporate ETRs during both tax regimes. The result supports political cost theory which suggests that larger companies endure higher ETRs. Besides that, lower ETRs are significantly related to highly leverage companies, greater investment in fixed assets and lower investment in inventory. This study also finds that companies with higher return on assets face lower ETRs. Further, sector analysis are carried out to provide the evidence for the variability of ETRs across sectors. The results indicate that companies from trading and services, properties and construction sectors face higher ETRs. Overall, this study explains the impacts of tax incentives to corporate ETRs and determinants of corporate ETRs.