Factors influencing tax avoidance in preparing financial statement among sme taxpayers

Tax avoidance cases in Malaysia is increasing year by year. Tax avoidance leads to shortfall in country’s revenue. Therefore, this study aims to investigate the factors that lead to tax avoidance among SME taxpayers in Penang, Malaysia. The study was performed by adopting the Approach-Avoidance Theory model. This model is widely used to explain the decision making by the taxpayers involving tax avoidance activities. The framework of the study focused on four level factors namely tax complexity, tax compliance costs, tax rate and government transparency spending and tax education and tax knowledge. The objectives of this study are to determine the level and the relationship of tax complexity, tax compliance costs, tax rate and government transparency spending and tax education and tax knowledge with tax avoidance. This study employed quantitative method by distributing the surveys to the SME taxpayers in Penang state. The total sample of this study were 420
respondents. Collected data were analysed by using SPSS Statistics version 25. As a result, the findings from the regression analysis revealed that tax complexity, tax compliance costs and tax education and tax knowledge had significantly contributed to tax avoidance activities among SME taxpayers in Penang state. However, the
study discovered that there was an insignificant relationship between tax rate and government transparency spending with tax avoidance activities in Penang state. The results of this research can be used to develop awareness among the SME owners and to reduce the tax avoidance cases in Penang, Malaysia.