Corporate governance and tax compliance: A study on Small Medium Enterprises (SMEs) in Malaysia

Abstract

This study attempted to examine the relationship between corporate governance and tax compliance among the Small and Medium Enterprises (SMEs) in Malaysia. Currently, SMEs are a rapidly growing business and play a significant role in boosting economic growth, as job provider, and leader in product innovation, as well as, tax revenue collection. Prior studies reported that in large companies, corporate governance could increase the tax compliance. However this issue had not been widely explored with regards to SMEs. Therefore, considering the importance of SMEs and their contribution of income tax revenue to the country, this study provided significant results on the relationship between corporate governance and tax compliance. The findings indicated the importance of directors in enhancing the tax compliance. Furthermore, this study also found that larger board size was associated with higher tax compliance. Consequently, the overall findings of this study provided another angle on the importance of corporate governance in determining the level of tax compliance in SMEs.