Trust in the government and regulation: do they play a part in CSR decoupling-tax relationship?

ABSTRACT

This paper investigates if trust in the government and regulation influence the relationship between Corporate Social Responsibility (CSR) decoupling and tax avoidance. Malaysia is deliberately examined following a recent trust issue between its citizen and the former government, in addition to a recent urge for tax avoidance regulation. The findings reveal that trust in the government and regulation do not influence the overall issues of CSR and tax at corporate level. The findings lend credence to the belief that the relationship between CSR and tax is not limited solely on the ethical feature, but beyond. Decision of CSR and tax at corporate level may be driven by other factors than mere contribution to society. The findings provide theoretical and practical implications, particularly to future researchers in the area, companies and the government.

KEYWORDS:

• CSR decoupling
• tax avoidance
• trust
• regulation
• corporate ethics

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1. This paper regards the debates in the trilogy of articles by Sikka (2010), Hasseldine and Morris (2013 and Sikka (2013) as the Smoke and Mirror.

2. Including accountants, lawyers and financial services experts who leverage technical skills that seek to normalize avoidance of taxes (Sikka 2010).

3. Syarikat Ibraco-Peremba Sdn Bhd is a wholly owned subsidiary of Ibraco group. Detail facts of the case (Civil Appeal No: W-01-177-04/2013) is obtained from Inland Revenue Board of Malaysia’s website under the ‘list of recent tax case’. Retrieved from: http://www.hasil.gov.my/bt_goindex.php?bt_kump=5&bt_skum=5&bt_posi=3&bt_unit=7000&bt_sequ=10&bt_lgv=2

4. The author notes these statements in his study written ‘even their codes do not go beyond a vague reference to “compliance with tax rules and procedures” (XL Capital) and meeting “financial reporting, regulatory, tax and legal obligations” (Wachovia)’.

5. Crediting the analysis of past literature on the relationship between CSR and tax avoidance by Stephenson and Vracheva (2015).

6. There is only one study found to investigate perception of managers and other stakeholders on whether tax payment is socially responsible, see Davis et al. (2013).

7. Tax avoidance is measured by effective tax rate (ETR). Higher tax avoidance indicates lower ETR. Tax avoidance and ETR have reverse effect.

8. Based on International Securities Identification Numbering (ISIN) system in Bursa Malaysia to define foreign companies as companies where their headquarters are not in Malaysia.

9. Governance is excluded as it is a different area of corporate sustainability issue independent of CSR although both are often complementary in corporate sustainability issue.

10. We accepts 0.8 r as red flag to multicollinearity issue that could potentially results in undermined statistical power of estimation.

11. see argument in Mohdali et al. (2014).