Corporate tax (CT)rate and CT revenue in Malaysia – Laffer curve: An autoregressive distributed lag (ARDL) approach

Annuar, Hairul Azlan and Isa, Khadijah and Salihu, Ibrahim Aramide and Solarin, Sakiru Adebola and Hamdan, Hamdino (2017) Corporate tax (CT)rate and CT revenue in Malaysia – Laffer curve: An autoregressive distributed lag (ARDL) approach. In: FGIC 2107 1st Conference on Governance and Integrity, 3rd-4th April 2017, Kuantan, Pahang. (Unpublished)

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Abstract

The policy of gradual reduction in the corporate tax rate in Malaysia, which commenced since 1988 and continued till today, has become a cause for concern, as the benefits of such reduction have not been established at least empirically. The present study thus investigates the impact of the reduction of the corporate tax rate on the corporate tax revenue. The study adopts the theory of taxation by Ibn Khaldun – depicted as laffer curve. The analysis of the time series data for period between 1996 and 2014, using the ARDL approach, shows that the corporate tax rate has a dual effect on the corporate tax revenue over the study period. It shows an inverted U-shape relationship between corporate tax rate and corporate tax revenue and further reveals that the optimal tax rate is 25.5156%. Inferentially, a positive relationship existed between the two variables prior to the optimal tax rate and a negative relationship afterward. A further test of causality also shows a long-run unidirectional causality from corporate tax rate to corporate tax revenue. Thus, the policy of the gradual reduction of the corporate tax rate is suspected to have positive impacts on the productivity of Malaysia companies in term of increase in corporate tax revenue.

Item Type:	Conference or Workshop Item (Invited Papers)
Additional Information:	3397/62175
Uncontrolled Keywords:	tax rate, Corporate tax (CT)rate, CT revenue, Laffer curve,
Subjects:	H Social Sciences > HJ Public Finance
Kulliyyahs/Centres/Divisions/Institutes (Can select more than one option. Press CONTROL button):	Kulliyyah of Economics and Management Sciences > Department of Finance
Depositing User:	dr hamdino hamdan
Date Deposited:	28 Feb 2018 15:59
Last Modified:	28 Feb 2018 15:59
URI:	http://irep.iium.edu.my/id/eprint/62175

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