Journal of Tax Reform
The influence of foreign ownership on tax avoidance in Thailand: A study from an emerging economy
Muhammad Syukur, Chatrudee Jongsureyapart
Mae Fah Luang University, Chiang Rai, Thailand
Abstract
Tax avoidance is an effort to avoid paying more taxes lawfully, but it results in a tax revenue loss for the government. Even though the nominal avoided tax is enormous in advanced economies, the impact of tax avoidance is more severe in emerging economies. Thailand is a developing country whose government has been actively putting action to tackle aggressive tax avoidance. Like other similar economies, Thailand invites more foreign investors to invest in its local businesses. However, literature has said that ownership level can influence tax avoidance, and ownership by foreign shareholders in emerging countries can increase tax avoidance. Thus, examining whether foreign ownership increases tax avoidance in a developing country is crucial and interesting. By owning shares in the company, foreign investors have the power to influence the firm’s decision-making process, including the decision for tax avoidance. This paper is the pioneer in discussing foreign ownership and tax avoidance in a Thai setting in its 100 most profitable companies. The observation is based on the five-year observations during 2015–2019. We measured tax avoidance using effective tax rate (ETR) and cash-flow ETR and manually collected foreign ownership data from the 500 annual reports. The statistical test verified that foreign ownership has a positive relationship with tax avoidance, which means that greater foreign ownership leads to a greater level of tax avoidance. This study recommends policymakers monitor the level of foreign ownership/control to limit aggressive tax avoidance that could be practised in the country.
Keywords
foreign ownership, tax avoidance, effective tax rate, cash-flow ETR, Thailand
JEL classification
H26References
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Acknowledgements
We are thankful for the services from anonymous reviewers and the editorial team of the Journal of Tax Reform. We also would like to thank our students (Myint Myat, Angsumalee Songsitthichiaroen, Thipphawan Klomchit, Shamsan Shaiaa Naji Saadan, Nicha Kaewkaew, Arunya Aksorn) for helping us collect data.
About Authors
Muhammad Syukur – MBA, Lecturer, School of Management, Mae Fah Luang University, Chiang Rai, Thailand (333 Moo 1, Mueang, Chiang Rai 57100, Thailand); ORCID: https://orcid.org/0000-0001-8820-0477; e-mail: muhammad.syu@gmail.com
Chatrudee Jongsureyapart – PhD, Lecturer, School of Management, Mae Fah Luang University, Chiang Rai, Thailand (333 Moo 1, Mueang, Chiang Rai 57100, Thailand); ORCID: https://orcid.org/0000-0003-1675-6171; e-mail: Chatrudee.jon@mfu.ac.th
For citation
Syukur M., Jongsureyapart C. The influence of foreign ownership on tax avoidance in Thailand: A study from an emerging economy. Journal of Tax Reform. 2023;9(1):98–109. https://doi.org/10.15826/jtr.2023.9.1.131
Article info
Received November 27, 2022; Revised January 13, 2023; Accepted February 3, 2023
DOI: https://doi.org/10.15826/jtr.2023.9.1.131
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