Determinants of underpayment of taxes among companies in Malaysia

Corporate tax collection is the highest contributor to the revenue for the Malaysian Government as compared to other direct taxes. Although there is an increase in the amount of direct tax collection over the years, the Inland Revenue Board of Malaysia (IRBM) takes the issue of the underpayment of tax gap seriously due to the
increasing number of tax evaders based on compliance with corporate tax collections. Thus, this study attempts to examine the determinants of underpayment of taxes among large corporate taxpayers in Malaysia by looking at the increase of tax imposed as a result of non-compliance taxpayers with the Advanced Instalment
Scheme (CP204). This study uses tax estimation information (CP204) sent to the IRBM as a method of measuring effective tax payments by taxpayers in Malaysia. The results show that corporate taxpayers in Malaysia can be correlated with underpayment of tax gap activities since the amount of tax payable is rising compared to the estimation tax submitted by taxpayers through Form CP204. Further, the results reveal that level of profitability and tax return filing experience have significant correlation with underpayment of tax gap while tax agent
involvement and age of the company does not provide evidence on the significant correlation with underpayment of tax gap. The results of this study are highly relevant to IRBM in developing strategies to curb underpayment tax gap as well as add value to the literature related to taxation.