Cash economy: tax evasion amongst SMEs in Malaysia

Author(s):

Azhar Mohamad , (Kulliyyah of Economics and Management Sciences, International Islamic University Malaysia, Kuala Lumpur, Malaysia)

Mohd Hasrol Zakaria , (Inland Revenue Board Malaysia, Kuala Lumpur, Malaysia)

Zarinah Hamid , (Kulliyyah of Economics and Management Sciences, International Islamic University Malaysia, Kuala Lumpur, Malaysia)

Citation:

Azhar Mohamad, Mohd Hasrol Zakaria, Zarinah Hamid, (2016) "Cash economy: tax evasion amongst SMEs in Malaysia", Journal of Financial Crime, Vol. 23 Issue: 4, pp.974-986, doi: 10.1108/JFC-05-2015-0025

DOI

http://dx.doi.org/10.1108/JFC-05-2015-0025

Downloads:

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Abstract:

Purpose

The purpose of this study is to investigate the relationship between tax evasion and certain demographic factors such as location, engagement of tax agent, size and type of small- and medium-sized enterprises (SMEs) industry in Malaysia.

Design/methodology/approach

In this study, using proprietary tax audit data from the Inland Revenue Board of Malaysia (IRBM) on the 2011 tax returns of SMEs, the authors run a multiple regression analysis to examine the impact of location, agent, type of industry, size of enterprise and type of tax evasion on SMEs’ tax evasion in Malaysia.

Findings

The authors find that tax evasion among SMEs in Malaysia is the highest when the business is located in a suburban environment and has no tax agent. Tax evasion is also influenced by the size of the SME (micro or medium).

Originality/value

This study gives insight that the IRBM can use to aid its collection department in profiling SMEs that have a higher tendency to evade paying tax.

Keywords:

Malaysia, SMEs, Tax evasion, Cash economy, Corporate income tax

Type:

Research Paper

Publisher:

Emerald Group Publishing Limited

Acknowledgments:

The authors thank the Operational and Compliance Department of the Inland Revenue Board of Malaysia for providing the data.

Copyright:

© Emerald Group Publishing Limited 2016
Published by Emerald Group Publishing Limited
Licensed re-use rights only