The dual role of auditor-provided tax services (ATS) in SMEs tax planning

Abstract

The aim of this study is to examine the role of auditor-provided tax services (ATS) in Small Medium Enterprises' (SMEs') tax planning. Tax planning is proxies by effective tax rate (ETR) measured as tax expenses divide by profit before tax. The main objectives of this study are to examine the influence of auditor-provided tax services fees and auditor size towards tax planning in Malaysian SMEs. To achieve the objective, this study used a pooled sample data of 319 SMEs from the years 2000 to 2010. This study found that auditor-provided tax services fees (ATSFEE) paid to the auditor can reduce the level of taxable income among SMEs. The findings also suggest that the size of auditor (Big-4 and non-Big 4) does influence the level of SMEs' taxable income and provided the evidence that SMEs companies are engaged in tax planning activities. This study found that other firm's characteristics such as leverage, capital intensity and profitability can influence the level of taxable income among SMEs. This study is a contribution to the pool of literature regarding the behavior of auditors that audit SMEs even as they provide other services. These findings can also assist the Malaysian government to amend the existing acts or introduce new policies for Malaysian SMEs.