Corporate Effective Tax Rates: A Study on Malaysian Listed Companies
Rohaya Md Noor
Nor’ Azam Matsuki

Accounting Research Institute & Faculty of Accountancy Universiti Teknologi MARA, Malaysia

Barjoyai Bardai
Adjunct Professor, UNITAR

This study examines corporate effective tax rates (ETRs) of Larger Malaysian listed companies during the new tax regime, and further investigate the relationship between corporate ETRs and their attributes. The goal of this study is to compare the effective tax rate effectively experienced by each company within and across sectors, and to provide evidence for factors that cause corporate ETRs to diverge from the statutory tax rate (STR). Using a micro backward-looking approach from a balanced panel sample of 294 companies (1470 firm years) for the years 2000 to 2004, the study provides evidence for the variability of corporate ETRs within and across sectors in which average corporate ETRs falls below the STR of 28%. The statistical results indicate that companies that face higher ETRs are from properties, trading and services and constructions sectors. The statistical results also reveal that lower ETRs are associated with highly leverage companies, greater investments in fixed assets and extensive foreign operations. Further, a negative coefficient for return on assets suggests that companies have benefited from tax incentives provided by the government. However, the finding provides support for the political cost theory, which suggests that larger companies face higher ETRs. Hence this study contributes to tax literature and policymakers on the impact of tax incentives of corporate ETRs and determinants of corporate ETRs.

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