Will a departure from tax-based accounting encourage tax noncompliance? Archival evidence from a transition economy
- Citation data:
Journal of Accounting and Economics, ISSN: 0165-4101, Vol: 50, Issue: 1, Page: 58-73
- Publication Year:
- Repository URL:
- https://works.bepress.com/klin/1; https://works.bepress.com/khchan/2; http://commons.ln.edu.hk/sw_master/2301
- Business, Management and Accounting; Economics, Econometrics and Finance; Book-tax differences; H26; IFRS; Informativeness of book-tax differences; Tax noncompliance; Tax-based accounting system; Accounting; Taxation
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.