The Impact of Corporate Governance Monitoring Mechanisms on Tax Avoidance

Abstract

Many countries rely on taxes as their primary source of revenue to raise budget revenues and fund national development. Taxation performs numerous functions by favourably influencing a country’s investment, education, social and economic development. Nevertheless, tax authorities require assistance with the problem of tax non-compliance, which hinders tax collection and administration. Tax avoidance is a tactic that businesses use to limit their tax liabilities by taking advantage of legal gaps in tax legislation. It is one type of non-compliance with tax laws. Tax avoidance is the practice of a business using a certain tax approach in the hopes that it will not be legally audited or questioned. However, this can be dangerous if the tax strategies are thought to be illegal. Despite applying corporate governance principles within listed corporations, the problem of corporate tax revenues in Malaysia remains a source of worry, as they account for a major amount of the government’s total income collection. As a result, good governance processes may provide greater tax avoidance supervision among Malaysian enterprises, thus improving the company’s integrity and aligning it with the national Sustainable Development Goal strategy. Nonetheless, few studies integrate good governance techniques into common governance mechanisms for tracking tax avoidance, especially in Malaysia, an emerging nation. This study aims to determine how corporate governance monitoring systems affect tax avoidance. A secondary data analysis will be carried out based on the reported financial statements of Malaysian listed firms from 2018 to 2022 (5 years). The data for this investigation are analysed using STATA software. The findings of this study show that corporate social responsibility has a weak, significant negative impact on tax avoidance, and foreign ownership has a weak, significant positive impact on tax avoidance. Meanwhile, leverage (control variable) shows a significant positive impact on tax avoidance.