CSR and tax aggressiveness of Malaysian listed companies: evidence from an emerging economy

Abstract

Purpose This study aims to examine how corporate social responsibility (CSR) performance and corporate tax aggressiveness relate in Malaysia, an emerging economy in Southeast Asia. It also seeks to analyse how CSR performance in community, environment, marketplace and workplace themes relate to the tax aggressiveness of listed companies in this country. Design/methodology/approach This study analyses 182 companies listed in the Main Market of Bursa Malaysia from 2010 to 2012 using fixed-effects panel regression and ordinary least square regression. It uses current effective tax rate as a proxy for corporate tax aggressiveness and measures CSR performance using specially developed CSR performance disclosure index. Findings This study finds no statistical support that CSR performance is related to corporate tax aggressiveness in Malaysia. Similarly, there are no statistically significant relationships between environment-related and marketplace-related CSR performance and corporate tax aggressiveness. Nevertheless, community-related CSR performance has significant negative relationship with corporate tax aggressiveness. Workplace-related CSR performance meanwhile has significant positive relationship with corporate tax aggressiveness. Originality/value This study expands the current literature's focus on developed economies by examining the relationship between CSR and corporate tax aggressiveness in the setting of an emerging Asian economy, i.e. Malaysia. It is also the first empirical study focussing on this relationship among Malaysian listed companies.

Corporate Social Responsibility Disclosure: Tax Agresiveness Indication?

“…Tax aggressiveness (TAG) would be measured using ETR Differences (ETR_DIFF) and Current ETR (ETR). The two measuring instruments referred to research performed by Lin et al, (2017) and Mohanadas et al, (2019). ETR_DIFF was used to calculate the proportion of tax expense to profit before tax, then it was followed by comparing the value of the company's ETR and the applicable tax rate.…”

“…It is the same with Laguir et al (2015) who prove that the higher the social dimension activities in public companies in France, the lower the tax aggressiveness carried out by the company. Meanwhile, Mohanadas et al, (2019) who use public companies in Malaysia state that CSR performance does not have a positive effect on tax aggressiveness. Whait et al (2018) state that empirical research related to CSR and tax aggressiveness can be classified into two.…”

“…However, by looking at phenomenon emerging for several years on tax aggressiveness, then this research tends to use basic thinking introduced by Landry et al (2013) that the level of tax aggressiveness is not always in line with firms' reputation described from the activity of its social disclosure. Mohanadas et al (2019) state that there is a difference in CSR disclosure and its effect on tax aggressiveness in developing and developed countries. His research in Malaysia shows that the busier the company to develop profiles of its social activity, the more aggressive the company to avoid tax.…”

“…CSR as well as its information disclosure is carried out to build up a good reputation, while tax aggressiveness tends to blacken the good name if the company is proven to avoid tax by illegal means. Thus, it creates a concept of tax aggressiveness (Andhari & Sukartha, 2017;Arianto, 2014;Lin et al, 2017;Mohanadas et al, 2019;Prasista & Setiawan, 2016;Suprimarini & H, 2017;Zeng, 2019). Tax saving is allowed as long as it is in the safe corridor or in other words, does not violate the law.…”

“…As stated by Hoi et al (2013), this tax aggressiveness is on the "gray area" boundary, although it can be said to be closer to the illegal limit. From this concept, there is a concern that if a company is highly aggressive in avoiding taxes, there is a potential for companies to avoid taxes not only by legal means but also by illegal means that are not allowed by law (Lin et al, 2017;Mohanadas et al, 2019;Zeng, 2019). If the company is proven to do an illegal action, the tax authority can impose severe sanctions against the company.…”