The effect of components of tax saving on tax disclosure

Mahfoudh Hussein Mgammal (College of Business, Jouf University, Saudi Arabia and Amran University, Yemen)

Pacific Accounting Review

ISSN: 0114-0582

Publication date: 26 June 2019



The purpose of this study is to examine the impact of tax planning (TP), which measured by the component of tax saving (TS), namely, permanent differences (PDs), temporary differences (TDF), foreign tax rates (FTRs) differentials and tax losses (TLOS) on tax disclosure (TD).


This study uses panel data set from sample consisted of 286 non-financial listed companies in the main market of Bursa Malaysia (formerly known as Kuala Lumpur stock exchange) for three years 2010-2012. The empirical understanding of TD depends on publicly source of data in the financial statement, characterized in the aggregated note of tax expenses. TD was measured using modified effective tax rate reconciling items, as it is appropriate in the Malaysian environment. The paper uses multivariate statistical analyses on this sample.


The empirical results of the multivariate regressions indicated that TD exhibits significant positive association with the TLOS component of TS but has significant negative relationship related to the PDs component of TS and TDFs component of TS.

Research limitations/implications

This study extends the prior-related literature by examining the relation between TD and component of TS. This study depends on both the signaling theory and the Scholes–Wolfson framework. These are the main theories concerned with TD and TP (TSs), respectively. Therefore, from a theoretical side, the authors adds to the current theories by verifying that users are the party influenced whether positively or negatively, by the extent of TD or the extent of activities of TP through Malaysian organizations.

Practical implications

The evidence found by this study has important policy and practical knowledge implications for a minimum of three parties, namely, authorities, researchers in academic field and decision-makers and firm managers. The findings can provide them some relevant insights on the importance of TS actions from companies’ perspective and contribute to the discussion of who verifies and deduces from TD directed by companies.


This study is regarded as the first attempt to examine the impact of the component of TS, namely: PDs, TDFs, FTRs differentials and TLOS on TD in a developing nation such as Malaysia. In spite of this paper focuses on a single country, it contributes significant insights to the debate about TD.



I appreciate helpful comments provided by Ku Nor Izah Ku Ismail Professor, TISSA, University Utara Malaysia, Sintok, Kedah/Malaysia, Barjoyai Bardai, Emeritus Professor, Universiti Tun Abdul Razak and Nor Shaipah Abdul Wahab, Senior lecturer in Accounting at Taylor’s Business School/Taylor University. I’m grateful as this paper has benefitted from her and referees constructive comments.


Mgammal, M. (2019), "The effect of components of tax saving on tax disclosure", Pacific Accounting Review, Vol. ahead-of-print No. ahead-of-print.

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