An evaluation of book-tax differences of South African firms

Daniel Petrus Schutte, Pieter Van der Zwan

Article ID: 5201
Vol 8, Issue 8, 2024

VIEWS - 122 (Abstract) 59 (PDF)

Abstract


This paper evaluates the permanent and temporary differences between accounting profits and taxable income of South African companies using the data in the SARS-NT panel. It contributes to the establishment of a body of knowledge about book-tax differences of South African companies. Unlike previous research conducted on this topic in other countries, the characteristics of the whole population of South African companies are considered. The results describe the book-tax differences and evaluate the nature and trends in the creation or reversal of temporary differences in South Africa. Significant amounts of book-tax differences were merely described as ‘Other’ in the information that taxpayers submitted to the SARS, which hampers a user’s ability to interpret or use this information sensibly. We further observed that the SARS-NT panel did not contain sufficient information to describe book-tax differences and trends therein by industry. These findings suggest that these are areas to consider to improve the design of tax returns and the development of the SARS-NT panel that will benefit future research.

Keywords


accounting profit; taxable profit; permanent taxable differences; temporary taxable differences

Full Text:

PDF


References


Abarghuoi, M. S., Shahmoradi, N. (2022). The effect of information environment on the relationship between consistency in book-tax differences and analysts’ earnings forecasts. Advances in Finance and Investment, 3, 152-129. https://doi.org/10.30495/AFI.2022.1952617.1110

Abdul Wahab, N. S., & Holland, K. (2015). The persistence of book-tax differences. The British Accounting Review, 47(4), 339–350. https://doi.org/10.1016/j.bar.2014.06.002

Alley, C., & Bentley, D. (2005). A remodelling of Adam Smith’s tax design principles. Australian Tax Forum, 20(4), 579-624.

Artsberg, K. (1996). The link between commercial accounting and tax accounting in sweden. European Accounting Review, 5(sup1), 795–814. https://doi.org/10.1080/09638189600000051

Desai, M. A., & Dharmapala, D. (2009). Earnings Management, Corporate Tax Shelters, and Book-Tax Alignment. National Tax Journal, 62(1), 169–186. https://doi.org/10.17310/ntj.2009.1.08

Edwards, J. R. (1989). A History of Financial Accounting. London and New York: Routledge.

Erickson, M., Hanlon, M., & Maydew, E. L. (2004). How Much Will Firms Pay for Earnings That Do Not Exist? Evidence of Taxes Paid on Allegedly Fraudulent Earnings. The Accounting Review, 79(2), 387–408. https://doi.org/10.2308/accr.2004.79.2.387

Fleischman, R. K., & Radcliffe, V. S. (2005). The roaring nineties: accounting history comes of age. Accounting Historians Journal, 32(1), 61–109. https://doi.org/10.2308/0148-4184.32.1.61

Frydlender, A., & Pham, D. (1996). Relationships between accounting and taxation in France. European Accounting Review, 5(sup1), 845–857. https://doi.org/10.1080/09638189600000054

Gallego, I. (2004). The accounting and taxation relationship in Spanish listed firms. Managerial Auditing Journal, 19(6), 796–819. https://doi.org/10.1108/02686900410543903

Gallego, I. (2005). The application of the interperiod tax allocation method in the Spanish firms. Managerial Auditing Journal, 20(2), 145–170. https://doi.org/10.1108/02686900510574566

GRAY, S. J. (1988). Towards a Theory of Cultural Influence on the Development of Accounting Systems Internationally. Abacus, 24(1), 1–15. Portico. https://doi.org/10.1111/j.1467-6281.1988.tb00200.x

Green, S. (1995). Accounting Standards and Tax Law: Complexity, Dynamism and Divergence. British Tax Review, 1, 445-51.

Hepfer, B. F. (2018). A Re-Examination of the Book-Tax Difference Pricing Anomaly. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.3165163

Herianti, E., Suryani, A., & Marundha, A. (2021). Managerial Ability and Future Banking Performance: The Role of Book-Tax Differences as Moderator. Journal of Accounting and Investment, 22(1), 173–191. https://doi.org/10.18196/jai.v22i1.9997

Hoogendoorn, M. N. (1996). Accounting and taxation in the Netherlands. European Accounting Review, 5(sup1), 871–882. https://doi.org/10.1080/09638189600000056

IASB (International Accounting Standards Board). (2017). IAS 12—Income Taxes. Available online: https://www.iasplus.com/en/standards/ias/ias12 (accessed 23 February 2018).

Izawa, R. (2020). Corporate structural change for tax avoidance: British multinational enterprises and international double taxation between the First and Second World Wars. Business History, 64(4), 704–726. https://doi.org/10.1080/00076791.2020.1727890

Kim, K. (2023). New light on Adam Smith’s view of taxation via the concept of equity. The European Journal of the History of Economic Thought, 1–24. https://doi.org/10.1080/09672567.2023.2225869

Kourdoumpalou, S., & Karagiorgos, T. (2012). Extent of corporate tax evasion when taxable earnings and accounting earnings coincide. Managerial Auditing Journal, 27(3), 228–250. https://doi.org/10.1108/02686901211207474

Lamb, M. (1996). The relationship between accounting and taxation: The United Kingdom. European Accounting Review, 5(sup1), 933–949. https://doi.org/10.1080/09638189600000060

Mei, L. (2021). Research on the Difference and Coordination between New Accounting Standards and Tax Law Based on Computer Aided Technology. Journal of Physics: Conference Series, 1744(3), 032174. https://doi.org/10.1088/1742-6596/1744/3/032174

National Treasury and UNU-WIDER. (2021). ITR14 2013–201 (dataset). Pretoria: National Treasury and UNU-WIDER.

National Treasury. (2011). Explanatory Memorandum on the 2011 Taxation Laws Amendment Bill. Pretoria: National Treasury and SARS.

Nerré, B. (2008). Tax Culture: A Basic Concept for Tax Politics. Economic Analysis and Policy, 38(1), 153-167. https://doi.org/10.1016/S0313-5926(08)50011-7

Nobes, C., Parker, R. (1991). Comparative International Accounting, 3rd ed. Hemel Hempstead: Prentice Hall.

Pfaff, D., & Schröer, T. (1996). The relationship between financial and tax accounting in Germany — the authoritativeness and reverse authoritativeness principle. European Accounting Review, 5(sup1), 963–979. https://doi.org/10.1080/09638189600000062

Pieterse, D., Gavin, E., & Kreuser, C. F. (2017). Introduction to the South African Revenue Service and National Treasury Firm‐Level Panel. South African Journal of Economics, 86(S1), 6–39. Portico. https://doi.org/10.1111/saje.12156

Rahi, S. (2017). Research Design and Methods: A Systematic Review of Research Paradigms, Sampling Issues and Instruments Development. International Journal of Economics & Management Sciences, 06(02). https://doi.org/10.4172/2162-6359.1000403

Riguen Koubaa, R., & Jarboui, A. (2017). Direct and mediated associations among earnings quality, book-tax differences and the audit quality. Journal of Financial Reporting and Accounting, 15(3), 293–316. https://doi.org/10.1108/jfra-06-2016-0052

Riguen, R., & Jarboui, A. (2015). Book-tax differences: relevant explanatory factors. International Journal of Accounting and Economics Studies, 3(2), 95–104. https://doi.org/10.14419/ijaes.v3i2.4717

Rohaya, Mastuki, N., & Bardai, B. (2009). Book‐Tax Difference and Value Relevance of Taxable Income: Malaysian Evidence. Journal of Financial Reporting and Accounting, 7(2), 19–40. https://doi.org/10.1108/19852510980000002

Shaw, S. J. (1975). The Nineteenth-Century Ottoman Tax Reforms and Revenue System. International Journal of Middle East Studies, 6(4), 421–459. https://doi.org/10.1017/s0020743800025368

Widiatmoko, J., Indarti, M. K. (2019). Book Tax Differences, Operating Cash Flow, Leverage and Earning Persistence in Indonesia Manufacturing Companies. Jurnal Dinamika Akuntansi, 11(2), 151-159.

Williams, C. (2011). Research Methods. Journal of Business & Economics Research (JBER), 5(3). https://doi.org/10.19030/jber.v5i3.2532

Wolfe, M. (1966). French Views on Wealth and Taxes from the Middle Ages to the Old Regime. The Journal of Economic History, 26(4), 466–483. https://doi.org/10.1017/s0022050700077500

Xian, C., Sun, F., & Zhang, Y. (2015). Book-tax differences: are they affected by equity-based compensation? Accounting Research Journal, 28(3), 300–318. https://doi.org/10.1108/arj-12-2013-0088

Zhou, M. (2016). Does accounting for uncertain tax benefits provide information about the relation between book-tax differences and earnings persistence? Review of Accounting and Finance, 15(1), 65–84. https://doi.org/10.1108/raf-05-2014-0054




DOI: https://doi.org/10.24294/jipd.v8i8.5201

Refbacks

  • There are currently no refbacks.


Copyright (c) 2024 Daniel Petrus Schutte, Pieter Van der Zwan

License URL: https://creativecommons.org/licenses/by/4.0/

This site is licensed under a Creative Commons Attribution 4.0 International License.