Will a departure from tax-based accounting encourage tax noncompliance? Archival evidence from a transition economy

Koon Hung CHAN, Zhenpin, Kenny LIN, Lai Lan, Phyllis MO

Research output: Journal PublicationsJournal Article (refereed)

42 Citations (Scopus)

Abstract

We investigate whether a departure from a tax-based accounting system toward the adoption of International Financial Reporting Standards encourages tax noncompliance. We also examine whether such a departure, which weakens book-tax conformity, affects the informativeness of book-tax differences for tax noncompliance. Our evidence suggests that as book-tax conformity decreases, tax noncompliance increases. Although book-tax differences remain informative of tax noncompliance, the informativeness attenuates as book-tax conformity weakens. Additionally, firms with high incentives to inflate book income are more tax compliant than their counterparts after the departure from a tax-based accounting system.
Original languageEnglish
Pages (from-to)58-73
Number of pages16
JournalJournal of Accounting and Economics
Volume50
Issue number1
DOIs
Publication statusPublished - May 2010

Keywords

  • Book-tax differences
  • H26
  • IFRS
  • Informativeness of book-tax differences
  • Tax noncompliance
  • Tax-based accounting system

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