monash_120159.pdf (2.97 MB)
An analysis of Malaysia's corporate income tax expenditures and negative income tax expenditures using accounting standards as the benchmark tax base
thesisposted on 2017-03-01, 00:01 authored by Yussof, Salwa Hana
Tax expenditures are government indirect spending, hidden in the tax system, often used to support government’s social and economic objectives. Instead of directly allocating money for a particular objective, the government forgoes tax revenues from those who undertake activities that could achieve the objective. Therefore, tax expenditures should be analysed as government spending programs. Tax expenditure reporting and analysis has been a regular practice among many countries in the world, especially in developed countries, to ensure efficient and effective allocation of government resources and enhance government’s transparency. Unfortunately, despite having lavish tax incentives, the Malaysian government has not produced a tax expenditure report. As a result, tax expenditures are mistakenly analysed as aspects of the tax collection system rather than as part of spending programs. This thesis sets a foundation for tax expenditure reporting and analysis in Malaysia by identifying and analysing tax expenditures of Malaysia’s corporate income tax arising from all sources of tax law – tax legislation, case law and administrative practices. In addition, this thesis also identifies and analyses negative tax expenditures that provide disincentives to government-disfavoured activities. The main objective of this thesis is to determine whether particular corporate income tax expenditures or corporate negative income tax expenditures should be removed, maintained or modified using the conventional tax expenditure analysis. Prior to identifying tax expenditures, elements of a benchmark tax structure are developed. This thesis contributes to new knowledge by proposing Malaysian accounting standards as the benchmark tax base to identify corporate tax expenditures. Any tax rules that deviate from the benchmark tax structure are analysed as tax expenditures (if they lower tax payable) or negative tax expenditures (if they increase tax payable). Conventional tax expenditure analysis commences with an assertion of (or speculation about) the apparent objective of each of the tax expenditures and negative tax expenditures being assessed, asking first whether there are justifiable reasons for the government to intervene in the market by offering subsidies or imposing penalties based on taxpayers’ behaviour. If government intervention can be justified, the next step is to propose the optimal vehicle to achieve the objective. The findings of this thesis reinforce doubts held by some about the effectiveness of tax expenditures as tools to promote government objectives. A number of the tax expenditures identified appear to be redundant, providing government support for companies to undertake actions that they would likely do even without the tax expenditures. Most tax expenditures in Malaysia are not accurately targeted; they only benefit profitable companies and thus miss many enterprises most in need of assistance. There are also tax expenditures that have lost their relevancy, including a few that were inherited from the British tax system. They have been forgotten or accepted as part of the normative tax system, and are left in the legislation with no revision. Most negative tax expenditures that are explicitly legislated have plausible reasons to stay in the tax system. However, implicit negative tax expenditures that stem from strict judicial interpretations have led to the denial of deductions for some normal business expenses. This is unfair to businesses. Overall, this thesis demonstrates the importance of tax expenditure reporting and analysis, particularly in Malaysia, to help the government in managing its resources and formulating better policies.