Tax compliance cost of bumiputera small and medium enterprises in Northern Malaysia

This paper explores and measures the level of tax compliance costs among Bumiputera small and medium enterprises in the Northern Region of Malaysia for the year of assessment 2003. The findings revealed that the tax compliance costs have a significant relationship with the paid up capital(size of enterprises). Overall, the tax compliance cost of Bumiputera small and medium enterprises was RM880,110 for the assessment year 2003. Furthermore tax compliance cost of smaller Bumiputera enterprises amounted to RM413,670 while the larger Bumiputera enterprises was RM466,440.The average tax compliance cost is RM22,003. Most of the large Bumiputera enterprises incurred more external tax compliance costs than internal compliance costs (62.34%) compared to the smaller Bumiputera enterprises (37.66%). In contrast, the smaller Bumiputera enterprises incurred more internal tax compliance costs of about 83% as compared to external tax compliance costs (17%). The results also indicated that small Bumiputera enterprises have a higher percentage of tax compliance costs based on tax revenue, which is 2.57 times more compared to large Bumiputera enterprises,which amounted to only 0.46 times

An Evaluation of the Malaysian Tax Administrative System and Taxpayers Perceptions Towards Assessment Systems, Tax Law Fairness and Tax Law Complexity

Tax regimes all around the world are constantly looking for ways and means to improve their tax revenue collections. Since tax revenue forms the major portion of the total revenue in any economy, the efficiency and productivity of the tax administrative system determines the amount collected for any particular year of assessment. If the tax administrative system is efficient and productive collection of tax revenue would be high. It has also been argued by many researchers that efficiency and productivity could be improved by means of the self-assessment system. Moreover, the compliance behaviour of the taxpayers is also important to income tax collections. Income tax could also be avoided or evaded by a taxpayer. Avoidance, within the legal framework, is allowed but evasion of taxes are looked upon as national crimes by the tax regimes. Heavy penalties are imposed for tax evasion. On the other hand, taxpayer compliance behaviour is unpredictable. Nevertheless, many researchers have studied this behaviour in many different perspectives. Researchers have also identified many variables that influence taxpayer compliance behaviour. But among the major factors that could influence taxpayer compliance behaviour are the tax administrative system, tax law fairness and tax law complexity. In this study, the efficiency and productivity of the Malaysian tax administrative system was evaluated. Using trend analysis, it was found that the Malaysian tax administrative system is moderately efficient and productive compared to Japan, Australia and New Zealand. However, it is not as efficient when compared to Indonesia and the U.S. But if we were to ignore Indonesia for reasons mentioned in this dissertation, then, generally, the Malaysian tax administrative system may be seen as efficient and productive. But the trend analysis also indicates that administration costs are on the rise and the productivity on the decline. This may be seen as an unhealthy trend for the Malaysian tax administrative system to remain efficient and productive. Taxpayers’ perceptions towards the assessment systems, tax law fairness, and tax law complexity were gathered through a survey. Differences in taxpayers’ perceptions were analysed by one-way ANOVA. Significant differences were found in their perceptions. Interestingly, the respondents positively perceived the implementation of the self-assessment system (SAS) in Malaysia. Except for those in the administrative and clerical group, others agreed that SAS could be implemented in Malaysia. Those in the administrative and clerical group fear that a new assessment system would be a burden to them. It could also mean that they may need to pay new taxes. With respect to tax law fairness, majority of the taxpayers perceived that the tax law is not being fair to them. Surprisingly, too, only the administrative and clerical group perceived that the tax law is fair or equitable to them. This could be because they are practically satisfied with the tax rate at which their income is subjected to tax. The lowest tax rate in Malaysia is 2 per cent on the chargeable income of RM10,001 - RM20,000. Tax rate, therefore, may also be a determinant in the taxpayer compliance behaviour. City taxpayers also agreed that the tax law was not equitable. Thus, in order to encourage voluntary compliance among the Malaysian taxpayers, it is important for the IRB and the government to improve these particular groups of taxpayers’ perceptions. The findings of the study also indicate that tax law complexity exists in Malaysia. All the respondents agreed that tax law complexity is one of the factors that hinders voluntary compliance. Record keeping, too much detail in the tax law and ambiguity were ranked highly and perceived to be major factors that hinders voluntary compliance. The IRB might take note of this and take the necessary steps to eliminate tax law complexity, if voluntary compliance were to be encouraged among the taxpayers. One of the major findings of this study is that only owner-managers hire tax professionals to help prepare their annual tax returns. All other taxpayers prepare their own tax returns. On the average, the owner-managers pay RM250.00 for professional services. This amount is considered low when compared to other developed and developing countries. Nevertheless, in order to encourage voluntary compliance, it is very important that the compliance costs are kept at a minimum. Compliance costs should not be a burden to the taxpayers even after the implementation of SAS in Malaysia. In conclusion, SAS could be implemented in Malaysia at a minimum cost. But efforts must be taken by the government to ensure that the taxpayers positively perceive tax law fairness. Tax law complexity exists in Malaysia, and if voluntary compliance were to be encouraged then ways and means must be undertaken to minimise it. Although, compliance costs is much higher among the owner-managers compared to others, it is still comparatively low when compared to other countries

The determinants of internet financial disclosure: The perspective of Malaysian listed companies

This paper investigates whether Internet Financial Disclosure (IFD) can be explained by the elements of the company’s characteristics and dominant personalities in board committees.Ten variables have been tested using data collected from 194 Malaysian listed companies’ websites, namely, internationality, leverage, foreign shareholders, information technology (IT) experts, firm’s age, number of shareholders, listing status, dominant personalities in the audit committee, chairman of audit and nomination committees, and dominant personalities in the audit and nomination committees.It is found that IT experts, firm’s age, number of shareholders and listing status are significantly affected by the level of IFD. However dominant personalities in the audit and nomination committees are negatively related to the level of IFD in Malaysia.The study provides some evidence to support the signalling theory and the cost and benefit hypothesis in relation to Internet disclosure

Malaysian institutional investors' annual reports information needs

This paper examines annual report information needs of Malaysian institutional investors. Data were collected from a sample of 286 institutions (compresing government agencies and private industries)through questionnaires, and were analysed to test for differences and relationships in the extent of usage and perceived importance of annual reports in Malaysia. The results indicate some significant differences in the extent of usage and in the perceived importance of items in annual reports between institutional investors

Individual taxpayer assessment performance under self- assessment system in Malaysia

The revert from the Official Assessment System (OAS) to the Self-Assessment System (SAS) in Malaysian tax system beginning year 2004 for individual taxpayers, forces taxpayers to perform the primary function of SAS i.e. income assessment task previously carried out by trained tax officers. The primary function is related to determining the correct amount of tax liability and getting the tax return accurate. Hence, the successful implementation of SAS relies heavily on the acceptance and cooperation of taxpayers. This study serves to evaluate the income assessment performance of taxpayers and its influential factors. Using Libby’s (1995) Antecedents and Consequences of Knowledge model as the underlying framework, this study examines the effect of factors such as knowledge in taxation, complexity of tax laws, attitude towards paying tax, probability of being detected, taxpayer assistance, general problem solving ability, experience and demographic variables on taxpayer assessment performance. Due to the nature of variables in this study which intends to elicit self ability and knowledge of a particular individual, a quasi-experimental design were chosen as the data collection method. In order to get the involvement from the real taxpayers, this study employs purposive sampling frame by choosing the UUM KL masters students. The results of this study provide empirical evidence that in order to perform their responsibilities well, taxpayers must possess knowledge in taxation. The relationship of knowledge and performance has been examined in the context of experts such as auditors and tax professionals. This study reveals that this relationship also exist in the context of novice, nevertheless the role of knowledge in the expert and novice model is slightly different due to the different nature of expert and novice knowledge

Internal Audit Effectiveness: An Approach Proposition to Develop the Theoretical Framework

Until now, there is no consensus among researchers either about the factors influencing internal auditing and how it can be measured, or the best framework for internal audit effectiveness. This could be partly related to lack of sufficient attention to the theories. This paper extends the literature of internal auditing, and its originality; and the argument is that agency theory, institutional theory, and communication theory could serve as an approach to build a theoretical framework of internal audit effectiveness. In addition to that, this study argues that the internal audit effectiveness is impacted directly by internal auditors’ characteristics and internal audit department performance, as well as organization members’ support as a moderating variable on these relationships which could provide insights for future research. Keywords: internal audit effectiveness, agency theory, institutional theory, communication theory, theoretical framework of internal audit effectiveness

Compliance costs of Malaysia's small and medium enterprises

This study presents compliance costs of Malaysia's Small and Medium Enterprises (SMEs) for the income tax assessment year 1998.These estimates obtained from a representative population using personal interviews suggest that the level of compliance costs, which are made of computational and planning costs is substantially greater for SMEs compared to public listed companies.For instance, the average tax paid by the SMEs is merely one-eleventh of the taxes paid by a typical listed firm.The average tax paid by the SMEs is merely one-eleventh of the taxes paid by a typical SME. This indicates that the compliance cost is three and a half times more regressive for an average SME. The study is particularly significant for Malaysian taxpayers (including SMEs) as the self-assessment system will be implemented in stages, commencing with companies, in 2001

Tax professionals' views on self assessment system

Malaysia has adopted an Official Assessment System (OAS) whereby taxpayers were assessed by the tax authorities based on the tax returns filled by them. The Malaysian Government has introduced a Self Assessment System (SAS) in stages commencing with companies from 2001. This new strategy require taxpayers to take more responsibility for getting their tax returns correct, since the information which they furnish in their returns will be accepted at face value by the Inland Revenue Board (IRB). The IRB, however, will audit some cases at random and if it has inaccurate information, the taxpayers concerned will be liable for prosecution.This survey focuses on the role of tax professionals under SAS. The findings of the survey reports on tax professionals' views and level of preparation towards the implementation of SAS in Malaysia. The findings also report on problems faced by tax professionals under the existing official assessment tax system and seek to ascertain tax professionals' perception towards the introduction of the new assessment system. Finally, the data provides some input on the preparatory measures to be undertaken by the IRB to facilitate tax practitioners' role in enhancing tax compliance under the new assessment system

Internet Financial and Environmental Disclosures by Malaysian Companies

This paper investigates whether determinants of financial disclosure are similar to environmentaldisclosure through the Internet. In other words, this paper examines the relationshipbetween Internet financial disclosure (IFD), Internet environmental disclosures (IED) and sixvariables, namely, ethnic of chief executive officer (CEO), leverage, level of technology, listingstatus, profitability, and firm size. Six hypotheses formulated in this study were analyzed usingdata collected from the websites of 189 Malaysian listed companies in 2006. The results indicatethat level of technology, ethnic of CEO and firm size are significant factors in explainingboth IFD and IED. It is also observed that listing status is positively related to the level of IFDbut not IED. On the other hand, profitability is significant factor in explaining the level of IEDbut not IFD. Finally, leverage is not significantly related to both IFD and IED. Copyright © www.iiste.or

Taxation, e-commerce and determination of permanent establishment / Zaleha Othman and Mustafa Mohd Hanefah

E-commerce provides a new way of conducting commercial transactions in today’s global market. E-commerce has made the world a one big marketplace. However, e-commerce also poses challenges to the existing tax rules in determining permanent establishment of businesses. Permanent establishment has been used as the criteria to determine whether a country has taxing rights on the business profits of a non-resident taxpayer. Most tax experts view the current concept of permanent establishment as insufficient to cope with e-commerce, as it is seen to be more suitable for traditional business transactions rather than internet trading. This paper investigates the application of current tax laws in Malaysia on the determination of permanent establishment in an e-commerce environment. Implications of existing policy to establish the source of income in e-commerce are also explored. Interviews were conducted to solicit opinions of tax officers and tax professionals in Malaysia. The respondents agree that the criteria used to determine permanent establishment should be applicable to both types of transactions: conventional and e-commerce. However, the respondents perceived that additional criteria should be included to determine permanent establishment in e-commerce transactions and some modifications to its definition are necessary to suit the modern form of trading over the internet