AUDIT COMMITTEE FINANCIAL EXPERTISE, FIRM ATTRIBUTES AND TAX AGGRESSIVENESS OF LISTED INDUSTRIAL GOODS COMPANIES IN NIGERIA

Abstract

This study examined the moderating effect of Audit Committee Financial Expertise on the relationship between firm attributes and tax aggressiveness among listed companies in Nigeria. The research framework adopted was the ex-post facto research design and positivist philosophy for the purpose of addressing the research problem. Data were sourced from published annual reports of quoted industrial goods companies in Nigeria. The study employed regression technique and descriptive statistic as techniques of analysis with the aid of E-views version 9. The finding revealed that audit committee financial expertise positively and significantly moderates the relationship between profitability, liquidity and tax aggressiveness of quoted industrial goods companies in Nigeria. On the other hand, Audit Committee Financial Expertise as moderator had significant negative effect on the relationship between leverage and tax aggressiveness of quoted industrial goods companies in Nigeria. The study therefore concluded that audit committee financial expertise has an indirect influence on the level of association between profitability, leverage, liquidity and tax aggressiveness of quoted industrial goods companies in Nigeria. Accordingly, it was recommended that while choosing board members, quoted companies should consider persons with financial accounting expertise.  Also, in the course of pursuing profitability, managers should consider strategies which expose the company to high risk of aggressive tax planning, because company regulators query companies with fluctuation in profitability as a likely sign of tax aggressiveness.

Keywords: Tax Aggressiveness, Profitability, Leverage, Liquidity, Audit Committee Financial Expertise

Introduction

Governments depend on revenues from diverse sources to deliver services to the citizens. The major source of revenue is taxation. In order to boost tax revenue, government has made efforts to support taxpayers by providing incentives, to reduce corporate tax liabilities.  Despite the advantages that are associated with tax revenues and government efforts of encouraging tax payers’ willingness, taxpayers (both individuals and companies) still view taxation as an undesired compulsory levy imposed on them by government. On September 8, 2019 the British Broadcasting Corporation (BBC) reported that Nigeria could be facing a fiscal crisis if it did not improve its capacity to generate higher revenues through aggressive collection of taxes. BBC further reported that government expenditure had doubled; while debt servicing had increased, with revenues lagging behind target, by not less than 45% since 2015 (Tanko, 2020). This poor revenue generation is partly attributable to tax avoidance which many corporate managers employ in order to reduce tax expenses.

In tax assessment and collection, government often experience compliance difficulties, manifested in tax avoidance and tax evasion, atimes through application of company policies such as implementing accounting procedures that unduly minimize the level or amount of taxable incomes. The driving factor for companies’ tax compliance or none-compliance is firm attributes, which are characteristics or factors inherent in the company. Some of the firm characteristics that influence companies to engage in tax aggressiveness are profitability, liquidity and leverage.

Corporate tax aggressiveness, according to Onyali and Okafor (2018), refers to the activities of corporates to minimize tax liabilities by using aggressive tax planning and tax avoidance tactics. Tax aggressiveness include not only the strategies aimed at minimizing tax liability, but also considers the cash flow consequences on the business regarding when it is most beneficial for a corporate to meet its tax liability to avert default penalty.

The major object of a company is shareholders’ wealth maximization. An effective way of achieving this aim is to minimize business cost, for which tax liabilities is a component. Management considers corporate income tax as one of the major sources of business cash outflow that has a direct impact on profitability and shareholder value (Onatuyeh & Odu, 2019). Profitability is a performance measurement tool in managing a company’s revenue as is evident in profits. Therefore, higher profits will strengthen management actions in tax avoidance, because the tax base is high (Maharani & Suardana, 2014).


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