Is Tax Administration an Obstacle to Firm Performance?

Abstract

The roles of firms in driving the economic growth cannot be neglected particularly via their contribution from taxation. However, their performance may be compromised if tax administration is complicated. Instead of boosting the economy, the impacts might turn out to be negative, which create multiplier reaction on the whole economic performance. This issue is relevant to be assessed since it helps the government to formulate better tax administration and public policies to ensure growth and sustainability in the private sector. Hence, this paper is meant to analyze how tax administration in Malaysia affects firm performance. By using responses from 938 firms generated from The World Bank’s Enterprise Surveys, descriptive statistics, Spearman correlation and cross-tabulation analyses were conducted. It was found that tax administration does not adversely affect firm performance in Malaysia. Instead, firm performance could be impeded due to other major obstacles such as competitors, business licensing and permits as well as high tax rates. The data used in this paper encompassed to three different sizes of firms namely small, medium and large companies. It does not include micro-enterprises or any non-government organizations. For future research, the inclusion of these two types of firms might be needed. Besides, since tax rate is declared as among the main obstacles in conducting business in Malaysia, its role in affecting firms’ performance can also be analyzed.