Corporate Tax Avoidance as Breaching of 'Tax Contract' with Government: Do Country Factors Matter?

This research examines the effect of good tax policy on tax avoidance and how it affects the economic development of countries in the Asia-Pacific region. Based on 116 country-year sample data, the results of the panel least-square regression analysis show that good tax policy, particularly for fairness, transparency in tax system, and transparency in tax usage, affects tax avoidance practices. Transparency in tax usage is the most important determinant of tax avoidance thus followed by fairness and transparency in tax system, respectively. We also find evidence that tax avoidance practices have a negative effect on equitable economic development. An important implication of this finding is that the government should manage tax funds effectively and efficiently on the best interests of society in an effort to reduce poverty and realize greater social welfare. In addition, the government is also responsible for increasing fairness in the tax payment, encouraging participation in the tax lawmaking, and improving the proper use of tax funds to suppress tax avoidance practices that could harm a country's economic development. [ABSTRACT FROM AUTHOR]