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

Autores: K. Hung Chan, Kenny Z. Lin and Phyllis L.L. Mo


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.

Keywords: Book-tax differences; IFRS; Informativeness of book-tax differences; Tax-based accounting system; Tax noncompliance.

Este artigo foi aceite para publicação no Journal of Accounting and Economics e é relativo à China.

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