Correlation between Tax Holidays and Earnings Management: An Empirical Study

Zinatul Ashiqin Bachek, Norsiah Ahmad, Norman Mohd Saleh

Abstract


ABSTRACT
This study investigates tax avoidance activities among tax-exempt Malaysian companies. Pioneer status companies enjoy up to 100 percent tax exemption on their statutory income for promoting certain activities or producing certain products. In this context, we explore the tendency of companies to manage earnings by shifting income through certain periods and thereby minimizing tax liabilities. Following the literature, discretionary current accruals are used as proxy for earnings management. A control sample is introduced to identify abnormal accruals induced by the pioneer status of companies. Multiple regression analysis indicates that companies manage their earnings to minimize their tax burden. Specifically, pioneer status companies in Malaysia accelerate revenues to the year prior to the expiration of their tax exemptions to reduce tax liabilities in subsequent years.
ABSTRAK
Kajian ini menyiasat aktiviti pengelakan cukai dalam kalangan syarikat Malaysia yang dikecualikan cukai. Syarikat berstatus perintis menikmati pengecualian cukai sehingga 100 peratus ke atas pendapatan berkanun mereka jika menjalankan aktiviti atau mengeluarkan produk yang digalakkan. Dalam konteks ini, kajian ini meneroka kecenderungan syarikat untuk mengurus perolehan dengan mengalihkan pendapatan mereka melalui tempoh tertentu dan dengan itu mengurangkan liabiliti cukai. Berdasarkan hasil kajian terdahulu, akruan semasa bolehpilih telah digunakan sebagai proksi bagi pengurusan perolehan. Satu sampel kawalan juga telah diperkenalkan untuk mengenal pasti akruan yang tidak normal disebabkan oleh taraf perintis. Keputusan analisis regresi berganda menunjukkan bahawa syarikat menguruskan perolehan untuk mengurangkan beban cukai mereka. Secara khususnya, syarikat-syarikat taraf perintis di Malaysia mempercepatkan keuntungan tahun sebelum habis tempoh taraf perintis bagi mengurangkan liabiliti cukai mereka dalam tempoh pasca perintis.


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