Optimizing tax compliance: Understanding the link between company tax administration and tax avoidance (A survey of public companies in Indonesia, Malaysia, Singapore, and Thailand for the 2022-2023 period)

Pratama, Arie; Kamaruzzaman Muhammad Article Optimizing tax compliance: Understanding the link between company tax administration and tax avoidance (A survey of public companies in Indonesia, Malaysia, Singapore, and Thailand for the 2022-2023 period) Economies Provided in Cooperation with: MDPI – Multidisciplinary Digital Publishing Institute, Basel Suggested Citation: Pratama, Arie; Kamaruzzaman Muhammad (2025) : Optimizing tax compliance: Understanding the link between company tax administration and tax avoidance (A survey of public companies in Indonesia, Malaysia, Singapore, and Thailand for the 2022-2023 period), Economies, ISSN 2227-7099, MDPI, Basel, Vol. 13, Iss. 7, pp. 1-30, https://doi.org/10.3390/economies13070194 This Version is available at: https://hdl.handle.net/10419/329474 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. 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If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. https://creativecommons.org/licenses/by/4.0/ Academic Editor: Angela Roman Received: 23 May 2025 Revised: 20 June 2025 Accepted: 28 June 2025 Published: 6 July 2025 Citation: Pratama, A., & Muhammad, K. (2025). Optimizing Tax Compliance: Understanding the Link Between Company Tax Administration and Tax Avoidance (A Survey of Public Companies in Indonesia, Malaysia, Singapore, and Thailand for the 2022–2023 Period). Economies,13(7), 194. https://doi.org/10.3390/ economies13070194 Copyright: © 2025 by the authors. Licensee MDPI, Basel, Switzerland. This article is an open access article distributed under the terms and conditions of the Creative Commons Attribution (CC BY) license (https://creativecommons.org/ licenses/by/4.0/). Article Optimizing Tax Compliance: Understanding the Link Between Company Tax Administration and Tax Avoidance (A Survey of Public Companies in Indonesia, Malaysia, Singapore, and Thailand for the 2022–2023 Period) Arie Pratama 1,* and Kamaruzzaman Muhammad 2 1Department of Accounting, Faculty of Economics and Business, Universitas Padjadjaran, Bandung 40132, Indonesia 2Faculty of Accountancy, Universiti Teknologi MARA Cawangan Selangor, Puncak Alam 42300, Malaysia; [email protected] *Correspondence: [email protected] Abstract Tax compliance remains a critical issue in corporate taxation research, particularly in understanding the causal link between the administration of corporate tax and tax avoidance. This study investigates the potential simultaneous relationship between the two by analyzing 277 listed firms across four Southeast Asian countries using two-year average data (2022–2023). The administration of corporate tax is measured using eight disclosure-based indicators from the Refinitiv Eikon database, while tax avoidance is proxied by the effective tax rate (ETR). The primary analysis applies multiple regression to assess the effect of tax administration on tax avoidance and logistic regression to evaluate the reverse relationship. To address endogeneity and test for simultaneity, robustness checks using two-stage least squares (2SLS) and instrumental variable techniques are employed. The results confirm a bidirectional relationship: a stronger administration of corporate tax is associated with lower tax avoidance, while tax avoidance behavior also shapes tax administration practices. These findings underscore the importance of strengthening internal tax governance as a foundation for compliance. Given varying levels of tax administration across countries, this study calls for greater international coordination to standardize corporate tax governance practices and reduce avoidance incentives. Keywords: tax administration; tax avoidance; Southeast Asia; simultaneous equation 1. Introduction In recent years, tax avoidance in Southeast Asia has become a significant concern for governments and policymakers. The region’s rapid economic growth and increasing integration into the global economy have created opportunities for both individuals and corporations to engage in tax avoidance practices. While often legal, these practices can result in substantial revenue losses for governments and contribute to income inequality (Hossain et al.,2024). Many Southeast Asian countries have been working to improve their tax administration systems and strengthen their tax governance. Recent developments in taxpayer management and governance in Southeast Asia have focused on leveraging technology and improving administrative processes. For instance, several countries in the region have begun implementing e-government initiatives, including electronic taxfiling systems, to enhance efficiency and reduce opportunities for aggressive tax avoidance Economies 2025,13, 194 https://doi.org/10.3390/economies13070194 Economies 2025,13, 194 2 of 30 (Holliday,2002). Additionally, there has been growing interest in utilizing artificial intelligence and big data analytics to detect aggressive tax avoidance within complex corporate networks (Nuryani et al.,2024). These technological advancements are complemented by efforts to improve tax administration, increase transparency, and foster a culture of compliance among taxpayers (Malkawi & Haloush,2008). In recent years, technological advancements, particularly in artificial intelligence (AI), machine learning, and big data analytics, have transformed tax compliance systems globally (Nembe et al.,2024). Tax authorities increasingly rely on AI-driven tools to detect irregularities, automate audits, and identify patterns of corporate tax avoidance (Belahouaoui & Attak,2024). This evolution in enforcement mechanisms has raised the compliance burden on firms and, at the same time, influenced managerial decisions regarding tax planning and administration. Despite these efforts, challenges remain in addressing tax avoidance in Southeast Asia. The region’s diverse economic landscape, varying levels of national governance quality, and complex corporate structures continue to pose difficulties for tax authorities (Montenegro,2021;Nuryani et al.,2024). As Southeast Asian countries continue to develop their tax systems, balancing the need for revenue collection while creating an attractive business environment remains a key challenge for regional policymakers. Research on tax avoidance plays a crucial role in understanding and addressing the complex challenges faced by modern tax systems. As governments worldwide grapple with the need to increase tax compliance and reduce revenue losses, particularly in the aftermath of economic downturns like the COVID-19 pandemic, the importance of this field of study has become increasingly evident (Paleka & Vitezi´c,2023). Research on tax administration and compliance behavior provides valuable insights into the factors that influence taxpayers’ decisions to evade or comply with tax laws, enabling policymakers to design more effective strategies for improving voluntary compliance (Luttmer & Singhal,2014). The study of tax avoidance and compliance encompasses a wide range of factors, including individual and corporate taxpayer characteristics, tax administration practices, and the impact of emerging technologies (Belahouaoui & Attak,2024;Hossain et al.,2024). By examining these aspects, researchers can identify critical gaps in understanding taxpayer heterogeneity and develop more nuanced approaches to addressing non-compliance (Paleka & Vitezi´c, 2023). Furthermore, research in this field has revealed the significance of non-pecuniary motivations such as tax morale and social norms in shaping compliance behaviors (Luttmer & Singhal,2014;Pui Yee et al.,2017). In conclusion, tax avoidance research serves as a vital bridge between academic understanding and practical policy implementation. By providing evidence-based insights into the complex dynamics of tax compliance, this study enables tax authorities to develop more targeted and effective strategies to combat avoidance, improve fairness, and ultimately enhance the overall efficiency of tax systems (Belahouaoui & Attak,2024;Luttmer & Singhal,2014). The administration of corporate tax plays a crucial role in ensuring taxpayer compliance, reducing corporate risk, and minimizing the likelihood of tax audits and fraud. Effective tax policies aim to strike a balance between generating revenue for the government and maintaining a favorable business environment. These policies often involve a complex interplay between reporting requirements, audit strategies, and enforcement mechanisms designed to encourage compliance and deter avoidance. Research has shown that partitioning taxable income into multicomponent reports can reduce overall aggressive tax avoidance and increase tax authority net revenue collections compared to single-report models (Rhoades,1999). This approach allows tax authorities to tailor their audit policies and consider all the tax return information, potentially leading to a more effective detection of non-compliance. However, the impact on predicted avoidance is not uniform across taxpayers, with some reducing avoidance, while others with multiple opportunities may Economies 2025,13, 194 3 of 30 be more likely to evade when faced with multicomponent reporting requirements. The effectiveness of The administration of corporate tax in ensuring compliance and reducing risk depends on various factors, including the uncertainty surrounding audit probabilities, the severity of penalties, and overall tax morale within the business community. Studies have shown that increasing uncertainty about audit probabilities (ambiguity) can increase tax compliance for ambiguity-averse taxpayers but may reduce compliance for ambiguity lovers (Snow & Warren,2005). Additionally, the activities of tax enforcement agencies, such as the IRS Criminal Investigation Division, have been found to have a measurable and significant effect on voluntary compliance (Dubin,2007). Previous research has not directly addressed the simultaneous influence of company tax administration and tax avoidance. However, some insights can be drawn from the available information. Corporate tax avoidance is influenced by various factors, including firm characteristics, political connections, and corporate social responsibility activities (Duhoon & Singh,2023). Companies adopt tax avoidance tactics to boost post-tax profits and meet shareholders’ expectations (Duhoon & Singh,2023). At the same time, types of company tax administration, such as tax information systems, tax calculation, and reporting schemes, and specific tax management units, are designed to encourage specific behaviors such as innovation and better compliance (Gao et al.,2015). This suggests a potential bidirectional relationship between tax administration and avoidance behavior. Interestingly, the effectiveness of tax benefits for innovation is largely anecdotal, and the empirical examination of the influence of innovation on firm-level taxation is still underexplored (Gao et al.,2015). This gap highlights the need for further investigation of the simultaneous influence of company tax administration and tax avoidance behaviors. In conclusion, while the provided studies do not explicitly examine the simultaneous influence of company tax administration and tax avoidance, they suggest a complex interplay between the two. This study focuses on this bidirectional relationship to better understand how The administration of corporate tax shapes avoidance behaviors and how these behaviors, in turn, influence the development of the administration of corporate tax. This research examines the complex interplay between corporate taxpayer tax administration and tax avoidance behaviors. Specifically, this study aims to investigate the potential simultaneous relationship between these two factors, exploring how the administration of corporate tax influences tax avoidance practices and, conversely, how tax avoidance behaviors shape the development and implementation of the administration of corporate tax. By analyzing this bidirectional relationship, this study seeks to provide valuable insights into the dynamics of corporate tax compliance, the effectiveness of current tax administration, and the strategies employed by companies to minimize their tax liabilities. This study contributes to a more comprehensive understanding of the factors driving corporate tax behavior and informs the development of more effective tax administration and enforcement mechanisms. This research introduces a novel approach to examine the relationship between the administration of corporate tax and tax avoidance behaviors by utilizing data disclosed in annual reports and gathered through the Refinitiv Eikon database. The novelty of this study lies in its exploration of the potential simultaneous and bidirectional relationship between tax administration and tax avoidance practices, moving beyond traditional unidirectional analyses. By leveraging the comprehensive financial data available in the Refinitiv Eikon database, this study conducts a more nuanced and data-driven investigation of how the administration of corporate tax influences tax avoidance strategies, and vice versa. This approach allows for a more holistic understanding of corporate tax behavior, potentially revealing complex interactions and feedback loops that have been previously overlooked. The use of annual report data provides a reliable and standardized source of information, Economies 2025,13, 194 4 of 30 enhancing the validity and comparability of the findings across different companies and sectors. This innovative methodology yields new insights into the dynamics of corporate tax compliance and the effectiveness of tax administration, contributing to both the academic literature and practical administration formulations. This study focuses on tax avoidance, defined as the legal reduction of corporate tax liability through strategic planning and the exploitation of regulatory gaps (Duhoon & Singh,2023). While some prior discussions on corporate tax behavior reference both avoidance and evasion, it is critical to distinguish between the two. Tax evasion involves illegal practices such as the concealment of income or falsification of expenses, whereas tax avoidance operates within the bounds of the law (Alm,1988). Given that this study analyzes publicly listed companies in regulated markets, it is highly unlikely that any firms in the sample engage in tax evasion. The rest of the paper is organized as follows: Section 2presents a brief literature review and research hypotheses; Section 3describes the research method; Section 4provides the research results, implications, and discussion; and Section 5concludes the article. 2. Literature Review and Hypotheses’ Development 2.1. Tax Compliance Theory Corporate tax compliance theory has been extensively studied in relation to tax avoidance, administration, and disclosures. The literature reveals a complex interplay between these factors, highlighting the multifaceted nature of corporate tax behavior. Tax compliance theory posits that firms comply with tax obligations not only because of legal enforcement but also because of perceived fairness, trust in tax institutions, and reputational considerations (Appiah et al.,2024;Farrar et al.,2017). Within this framework, tax administration practices such as transparency, board oversight, and internal risk controls serve as institutional mechanisms that reinforce compliant behavior and reduce the likelihood of aggressive tax planning. In addition, several accounting theories offer valuable insights into the relationship between tax administration and tax avoidance. Agency theory, for instance, suggests that managers may engage in opportunistic behavior such as tax avoidance to maximize short-term performance or personal gain (Zolotoy et al.,2020). Strong tax oversight and governance structures, such as independent audit committees or tax risk management practices, can mitigate agency conflicts by aligning managerial incentives with shareholder interests (Amara et al.,2025). Legitimacy theory further explains that firms are motivated to demonstrate responsible tax behavior to maintain social legitimacy, particularly in environments with increasing stakeholder scrutiny (Xu et al.,2022). Signaling theory also supports this perspective by emphasizing that firms use tax disclosure and governance mechanisms to differentiate themselves in the eyes of investors and regulators. Companies with low levels of tax avoidance and robust tax governance may use these signals to attract long-term capital, reduce information asymmetry, and establish credibility (Khurana & Moser,2012). Together, these theoretical lenses help explain how tax administration acts as both a control and communication mechanism that influences the degree of tax avoidance practiced by firms. Tax avoidance is a significant concern in corporate taxation, ranging from the legitimate use of tax rules to outright violations of tax laws (Wang et al.,2019). The determinants of tax avoidance behavior are diverse and include firm characteristics, political connections, and corporate social responsibility activities (Duhoon & Singh,2023). Multinational corporations engage in various aggressive tax avoidance strategies such as transfer mispricing, international debt shifting, treaty shopping, tax deferral, and corporate inversions (Beer et al.,2019). Economies 2025,13, 194 5 of 30 Tax administration plays a crucial role in shaping corporate compliance. Research suggests that a 1 percentage-point lower corporate tax rate expands before-tax income by 1%, an effect that appears to be increasing over time (Beer et al.,2019). However, the impact of tax avoidance on firms’ value and performance is mixed, as demonstrated in a study of Vietnamese listed firms (Khuong et al.,2020). A perception and knowledge of taxes’ fairness significantly influence corporate taxpayers’ willingness to pay taxes and overall tax compliance (Oladipo et al.,2022). Regarding tax disclosures, mandatory financial transparency has been shown to affect corporate tax avoidance. A study of European multinational banks found that public country-by-country reporting led to increased tax expenses for banks with previously undisclosed activities in tax havens (Overesch & Wolff,2021). This finding suggests that comprehensive tax transparency can serve as an effective instrument to curb corporate tax avoidance. Corporate tax compliance theory encompasses a wide range of factors that influence tax behavior. While tax avoidance remains a significant issue, research indicates that administrative measures, such as improved transparency and fairness, can enhance compliance. 2.2. Tax Administration The administration of corporate tax refers to the strategies and approaches adopted by companies to manage their tax obligations within legal frameworks (Gribnau & Jallai, 2017). It encompasses various aspects of tax planning, compliance, and management aimed at optimizing a company’s tax position while adhering to regulatory requirements (Pratama & Pratiwi,2022). The definition of the administration of corporate tax can vary but generally involves a systematic approach to managing a company’s tax affairs. This includes decisions on tax planning, risk management, and compliance strategies (R. C. Christensen,2024). These metrics help companies assess their tax performance and make informed decisions regarding their tax strategies. Interestingly, research has shown that corporate tax avoidance behavior, a key aspect of tax administration, can have contradictory effects on firms’ value, market growth, and corporate transparency disclosure decisions (Duhoon & Singh,2023). The complex nature of tax administration and its far-reaching nature have implications for various aspects of corporate performance (Pratama,2022). The administration of corporate tax is a multifaceted concept that involves strategic decision-making to optimize a company’s tax position (Rudyanto,2024). While it aims to minimize tax liabilities, it must also ensure compliance with the legal requirements. The use of KPIs in tax management allows companies to monitor their performance and adjust their strategies accordingly (Chow et al.,2023). However, the impact of aggressive tax management can be doubleedged, affecting various aspects of corporate performance and stakeholder perception (Oats & Tuck,2019). Recent research has shed light on the increasing importance of tax governance mechanisms in influencing corporate tax behavior. In particular, tax transparency has emerged as a crucial factor in determining a firm’s tax planning approach. Companies that demonstrate higher levels of transparency in their tax affairs are generally less inclined towards aggressive tax avoidance strategies (Balakrishnan et al.,2018). This transparency acts as a signal of legitimacy for various stakeholders, including investors, regulators, and the public (Zhang et al.,2022). By openly disclosing their tax practices and policies, firms can build trust and credibility, potentially mitigating the reputational risks associated with perceived tax aggressiveness. In addition to transparency, an enhanced tax risk oversight has been identified as another key element in shaping responsible corporate tax behavior. Independent board Economies 2025,13, 194 6 of 30 committees dedicated to overseeing tax-related matters have been shown to play a significant role in reducing opportunistic tax planning (Beasley et al.,2020). These committees can provide a specialized expertise and independent scrutiny of a company’s tax strategies, ensuring that they align with broader corporate governance principles and ethical standards. By implementing robust tax governance structures, firms can better manage their tax risks, comply with evolving regulations, and maintain a balance between tax efficiency and corporate social responsibility (Abdelfattah & Aboud,2020). These insights suggest that internal governance structures and transparency are essential components of an effective administration of corporate tax. 2.3. Tax Avoidance Tax avoidance is a complex corporate behavior that has garnered significant attention in academic research. It is generally defined as the legal reduction of tax liabilities using various strategies and techniques (Beer et al.,2019). The measurement of tax avoidance typically involves using effective tax rates, calculated by dividing tax expenses by pre-tax income (Chan et al.,2015). The relationship between tax avoidance and corporate governance is both multifaceted and ambiguous. While some studies suggest that strong corporate governance can mitigate the negative consequences of tax avoidance (Bayar et al.,2018), others find a negative association between governance and tax avoidance (Kovermann & Velte,2021). Interestingly, the impact on firms’ value varies across institutional contexts. The positive relationship between tax avoidance and firms’ value diminishes in countries with weak corporate governance and high levels of corruption (Tang,2017). This suggests that the value of tax avoidance is influenced by the heterogeneous agency costs associated with different institutional environments. A literature review of tax avoidance reveals a complex interplay between corporate governance, institutional factors, and firm value (Jiang et al.,2020). While tax avoidance can potentially create value for shareholders, its effects are moderated by various factors, including the strength of corporate governance mechanisms and institutional environment (Ortiz-De-Mandojana et al.,2014). This study uses ETR as a single proxy to measure tax avoidance due to its widespread acceptance, consistency, and comparability across jurisdictions. The ETR, calculated as the total income tax expense divided by the pre-tax income, captures the effective tax burden borne by firms and reflects the cumulative impact of their tax planning strategies. While alternative proxies, such as cash ETR or book–tax differences, exist, they present notable limitations in multi-country studies. The cash ETR is sensitive to timing differences and volatile payment schedules, which are particularly inconsistent in emerging market contexts (Edwards et al.,2020). However, book–tax differences require granular data not uniformly disclosed across all the firms or countries in this study (Towery,2017). Moreover, using multiple proxies may introduce methodological inconsistencies and reduce the sample size owing to data’s unavailability. Therefore, the use of a standardized, consistently reported measure, such as ETR, ensures robustness and comparability in cross-country analyses while aligning with prior research in the field (Dyreng et al.,2007;Kovermann & Velte,2021). While various mechanisms of tax avoidance have been identified in the global literature, including the use of tax shelters, hybrid instruments, and financial engineering, many of these practices are more prevalent in jurisdictions such as the United States and may not apply uniformly to Southeast Asia (Cobham & Janský,2018). In the context of Indonesia, Malaysia, Singapore, and Thailand, the dominant mechanism of corporate tax avoidance is profit shifting through transfer pricing arrangements between related entities (Kim et al.,2011;Lohse & Riedel,2013). These practices involve reallocating profits to lower-tax jurisdictions by manipulating intra-group transactions, such as the pricing of goods, services, or intangible assets (Choi et al.,2020). However, due to limitations in Economies 2025,13, 194 7 of 30 the availability of firm-level international tax disclosures—such as country-by-country reporting (CbCR), this study adopts the effective tax rate (ETR) as a commonly used, albeit imperfect, proxy for overall tax avoidance behavior. 2.4. Hypothesis Development The administration of corporate tax plays a significant role in shaping corporate tax avoidance behavior. Recent literature suggests that tax decisions are crucial managerial decisions, with managers using tax avoidance tactics to increase after-tax profits and fulfill shareholders’ expectations (Duhoon & Singh,2023). The relationship between the administration of corporate tax and tax avoidance is complex and multifaceted and is influenced by various factors, such as firms’ characteristics, political connections, and corporate social responsibility activities (Duhoon & Singh,2023;Krieg & Li,2021). Interestingly, the literature reveals contradictions in the relationship between the administration of corporate tax and tax avoidance. While some studies conclude that socially responsible companies are more likely to engage in tax avoidance (Gulzar et al.,2018), others suggest a negative relationship between corporate social responsibility (CSR) and tax avoidance (Kovermann & Velte, 2021). Several studies suggest that the administration of corporate tax can significantly influence tax avoidance through various mechanisms. These include tax havens (Jiang et al.,2020), international debt shifting, treaty shopping, and corporate inversions (Beer et al.,2019). Furthermore, the impact of tax administration on avoidance behavior may vary across different contexts and jurisdictions, as shown by contrasting results in Indonesia and Australia (Rini et al.,2023). There is still a need to explore these variations and identify the specific administrative elements that most effectively deter or encourage tax avoidance behavior. Based on agency and legitimacy theories, firms that institutionalize tax oversight and transparency mechanisms are more likely to reduce opportunistic tax behavior and align managerial actions with stakeholder expectations. These mechanisms help institutionalize responsible tax practices within organizations. Therefore, the following hypothesis was formulated: H1. Firms with stronger corporate tax administration practices exhibit lower levels of tax avoidance. Corporate tax avoidance has been shown to significantly influences the administration of corporate tax through various mechanisms. Recent literature suggests that companies use tax avoidance strategies to reduce their tax burden, which, in turn, influences their overall tax administration decisions. Research has shown that companies with directors associated with tax havens exhibit greater tax avoidance behavior. For instance, U.S. companies with directors who have links to the Bahamas, Bermuda, or the Cayman Islands show a reduction in their effective tax rate of one to three percentage points and an increased use of subsidiaries in tax havens (Jiang et al.,2020). This suggests that social and professional connections play a crucial role in shaping the administration of corporate tax. Company characteristics and management decisions have a significant impact on tax avoidance behavior. Managers often adopt tax avoidance tactics to increase after-tax profits, fulfill shareholders’ expectations, and sometimes for personal benefit. In addition, corporate characteristics, political connections, and corporate social responsibility activities influence tax decisions (Duhoon & Singh,2023). These factors collectively contribute to the formulation of corporate tax administration. Tax avoidance’s impact on corporate performance and value is also a critical factor in shaping the administration of corporate tax. Some studies indicate a mixed relationship between tax avoidance and corporate performance, suggesting that the benefits of tax avoidance may not always outweigh the potential risks and costs (Khuong et al.,2020). This finding underscores the importance of a balanced approach to tax administration that considers both its financial and rep- Economies 2025,13, 194 8 of 30 utational impacts. Corporate tax avoidance significantly influences tax administration through various interrelated factors, including the relationship between directors, company characteristics, CSR considerations, and the impact on performance (Hasan et al.,2023). As organizations navigate these complex relationships, they must carefully develop tax administrations that balance financial objectives with broader stakeholder expectations and regulatory compliance (Ramesh & Athira,2023). Based on signaling theory, transparent firms seek to legitimize their tax behavior through structured disclosure mechanisms, thereby shaping the development of tax administration practices in response to perceived scrutiny and reputational considerations. This approach influences the evolution of tax administration practices driven by companies’ awareness of scrutiny and concerns about reputation. Therefore, the following hypothesis was formulated: H2. Firms that engage in lower levels of tax avoidance are more likely to adopt formal corporate tax administration practices. 3. Method This study focuses on the Southeast Asian region. Several firms in Southeast Asia engage in different avoidance strategies, which are often shaped by weak enforcement and profit-shifting opportunities. In emerging markets, particularly in Southeast Asia, multinational firms often exploit institutional gaps and regulatory inconsistencies to engage in tax avoidance through mechanisms such as transfer pricing and cross-border profit shifting. However, the ability to empirically capture these international avoidance strategies remains limited. This is primarily due to the absence of publicly available detailed data on consolidated group-level financials or country-by-country reporting within standard company annual reports. As a result, measuring profit shifting with precision using the available dataset is currently infeasible. Therefore, this study focuses on domestically observable tax avoidance behaviors through proxies, such as the effective tax rate (ETR), which are consistently reported and verifiable, while recognizing the broader international tax avoidance dynamics that remain important but outside the empirical scope of this research. The selected Southeast Asian countries were Indonesia, Malaysia, Singapore, and Thailand. These four countries have the largest Gross Domestic Product (GDP) compared to other Southeast Asian countries, so the potential tax that can be achieved from GDP ranges between 10 and 30%. This study considers 2022 and 2023. The year 2022 was chosen as the initial year of research because 2022 is the initial implementation of the Organization for Economic Co-operation and Development (OECD) policy on Global Minimum Taxation, which emphasizes tax transparency and the establishment of minimum tax rates to reduce the level of tax avoidance globally (Johannesen,2022). The year 2024 could not be studied because at the time of the research, many companies had not yet reported their annual reports. The study population comprises all public companies in four Southeast Asian countries, totaling 3007 companies, but 277 companies have complete data: 21 companies from Indonesia, 139 companies from Malaysia, 42 companies from Singapore, and 75 companies from Thailand. Thus, 554 observations were studied. This sample refinement was based on methodological standards commonly applied in tax avoidance research. First, firms reporting net losses were excluded, as the effective tax rate (ETR) is not a meaningful measure for such companies because of the absence or negativity of taxable income (D. M. Christensen et al.,2021). Second, firms with ETR values greater than one were eliminated, given that it is not economically plausible for a company to pay income tax exceeding its reported earnings, which are often indicative of data irregularities, deferred tax anomalies, or non-recurring adjustments (Schwab et al.,2021). Additionally, Economies 2025,13, 194 15 of 30 LVG variable. Descriptive statistics for LVG in 2023 generally decreased compared with 2022, further supporting the assertion of improved financial performance. 4.1.2. Corporate Tax Administration Descriptives Table 3compares the disclosure of corporate tax administration (CTAR) elements across Indonesia, Malaysia, Singapore, and Thailand, and the overall averages for 2022 and 2023. Based on the overall trends, none of the eight elements that served as indicators of the CTAR variable exhibited values exceeding 20%. However, most elements saw a slight increase in disclosures from 2022 to 2023, with Policy Tax Transparency having the highest increase, from 10.47% to 17.33%. The lowest disclosure is the Tax Auditor Information, at 0.36% in 2022 and 0.72% in 2023. In 2023, the highest levels of corporate tax administration score were observed in the elements of Policy Tax Transparency (17.33% overall, with Indonesia leading at 33.33%), Taxes Align to Revenues (10.47% overall, with Indonesia leading at 23.81%), and the Tax Fairness Commitment (8.66% overall, again led by Indonesia at 19.05%). These results show that Indonesia places a relatively high emphasis on tax administration disclosure and ethical tax commitments compared to other countries in the region, although the overall transparency levels in key areas such as verification and auditor accountability remain low. However, it should be noted that Indonesia has a smaller number of companies than other countries, so a large percentage in Indonesia does not necessarily indicate that implementation in Indonesia is much greater than in the other three countries. The Tax Data Verification element registers a low percentage overall score of 1.08% both in years 2022 and 2023, with Indonesia specifically recording a value of 0%. This may be attributed to Indonesia’s adherence to the principle of tax data confidentiality, whereby the tax data presented are generally limited to those requested in accordance with general financial statements (Basri et al.,2021). There is no indication of whether the data are verified in accordance with tax provisions. The conditions in the other three countries were similarly limited, with only one company represented in each country. The Tax Fairness Commitment element also exhibits a low percentage score, with overall scores of 6.86% (2022) and 8.66% (2023). An increase in this element’s score was observed across all study countries except Indonesia. Notably, Malaysia shows a significant increase (3.60% to 6.47%) involving four companies, from five to nine companies. The Tax Auditor Information element is the least disclosed element, reported only 0.72% (2023), exclusively reported by Singapore. Tax auditors are not mandatory in the study countries, as financial statement auditors typically do not conduct specialized tax audits (De Simone et al.,2014). However, various studies suggest that tax governance can be enhanced through a tiered audit of tax aspects in corporate financial statements. Tax auditors’ examination may also mitigate the risk of scrutiny by taxation authorities (Chyz et al.,2021). Tax Oversight by The Board has a disclosure value of 6.86% (2023). Indonesia consistently led, with 19.05% of companies disclosing this element in both 2022 and 2023, indicating a stronger emphasis on board-level involvement in tax governance. Other countries showed gradual improvements, most notably Malaysia, which increased from three disclosures in 2022 to seven in 2023, reflecting growing awareness and responsibility at the board level regarding corporate tax matters. Generally, in the four countries studied, there is no regulatory requirement for board members to specifically oversee tax obligations and present tax reports (Beasley et al.,2020). Nonetheless, some companies have audit or risk committees that address tax risk and compliance (Klassen et al.,2015). There was a general improvement in the element Taxes Align to Revenues in all countries in 2023, with the disclosure rate increasing from 7.94% in 2022 to 10.47%. This positive trend was particularly evident in Thailand and Malaysia, where the number of companies that disclosed this information increased significantly. The results suggest that companies are Economies 2025,13, 194 16 of 30 making progress in showing that their tax payments match their revenues, reflecting a growing awareness of the importance of tax transparency and fairness. All the study countries generally adhere to OECD principles, ensuring fair tax payments commensurate with the income earned. These OECD principles have been integrated into each country’s tax regulations (Alinaghi & Reed,2020). Table 3. Corporate tax administration score. Elements of CTAR Year Indonesia Malaysia Singapore Thailand Overall % of Companies that Disclosed Tax Data Verification 2023 01113 0.00% 0.72% 2.38% 1.33% 1.08% 2022 01113 0.00% 0.72% 2.38% 1.33% 1.08% Tax Fairness Commitment 2023 4 9 6 5 24 19.05% 6.47% 14.29% 6.67% 8.66% 2022 5 5 5 4 19 23.81% 3.60% 11.90% 5.33% 6.86% Tax Auditor Information 2023 00202 0.00% 0.00% 4.76% 0.00% 0.72% 2022 00101 0.00% 0.00% 2.38% 0.00% 0.36% Tax Oversight by Board 2023 4 7 6 2 19 19.05% 5.04% 14.29% 2.67% 6.86% 2022 4 3 5 3 15 19.05% 2.16% 11.90% 4.00% 5.42% Taxes Align to Revenues 2023 5 11 6 7 29 23.81% 7.91% 14.29% 9.33% 10.47% 2022 4 6 7 5 22 19.05% 4.32% 16.67% 6.67% 7.94% Audit Oversight of Tax 2023 12317 4.76% 1.44% 7.14% 1.33% 2.53% 2022 11215 4.76% 0.72% 4.76% 1.33% 1.81% Named Position for Tax Oversight 2023 14207 4.76% 2.88% 4.76% 0.00% 2.53% 2022 11204 4.76% 0.72% 4.76% 0.00% 1.44% Policy Tax Transparency 2023 7 18 9 14 48 33.33% 12.95% 21.43% 18.67% 17.33% 2022 6 9 7 7 29 28.57% 6.47% 16.67% 9.33% 10.47% Economies 2025,13, 194 17 of 30 The Audit Oversight of Tax element shows a relatively low disclosure across all countries, with only 2.53% of companies reporting this element in 2023, although this represents a slight increase on the previous year. Singapore leads the way in this area, with 7.14% of companies disclosing audit oversight of tax matters, indicating a marginally stronger role of internal audits in tax administration. Not all companies conduct a specific oversight of tax audits, which is consistent with the low score on the Tax Auditor Information element. The Named Position of Tax Oversight element showed a slight improvement overall, increasing from 1.44% in 2022 to 2.53% in 2023. Despite this modest increase, this practice remains uncommon across the region, with Thailand reporting no companies with designated positions for tax oversight. This suggests that in most cases, responsibility for tax oversight is still handled informally or embedded in broader duties, rather than being assigned to a clearly defined position within the organizational structure. Lastly, Policy Tax Transparency is the highest-value element among the eight existing CTAR indicators. However, tax policies related to transparency are often corporate formalities disclosed in corporate reporting, indicating that companies are still in the commitment stage rather than the implementation stage (Olsen & Stekelberg,2015). The analysis shows both progress and persistent challenges in corporate tax administration disclosure in Southeast Asia. Most countries are disclosing more information, especially Policy Tax Transparency, which is a sign of the increasing importance of openness. However, there are still critical gaps in Tax Data Verification and Tax Auditor Information, indicating potential risks to accountability in tax reporting. In terms of country differences, Singapore leads the Audit Oversight of Tax, Indonesia excels in Policy Tax Transparency, while Thailand and Malaysia are making progress but still lag behind in management oversight and formalized tax functions. These findings suggest that harmonized standards are needed to increase transparency, particularly in under-reported areas, while leveraging the best regional practices to encourage wider compliance. 4.1.3. ANOVA The results of the ANOVA are presented in Table 4. This test was conducted to compare the means of the variables across countries and industry sectors. On a per-country basis, all the variables exhibited significant differences among the countries studied. Indonesia had the highest CTAR and CTA component values. The analysis of the administration of corporate tax reveals that Indonesia has the highest average disclosure score (0.128), indicating a stronger commitment to tax governance than other countries. By contrast, Malaysia (0.035) and Thailand (0.043) show significantly lower averages, suggesting weaker disclosure practices in these countries. The differences in CTAR scores across countries are statistically significant (F = 8.833, p= 0.000), highlighting meaningful variations in the articulation and disclosure of corporate tax policies in the region. The analysis of corporate tax avoidance on a per country basis reveals notable differences in tax behavior across Southeast Asia. Indonesia recorded the highest average CTA score of 0.274, suggesting a greater tendency among its companies to engage in tax minimization strategies. Malaysia (0.242) and Thailand (0.181) also show relatively high levels of tax avoidance, although lower than that in Indonesia. These findings suggest that, while some countries are making efforts toward improved tax governance, tax avoidance remains prevalent in others, particularly in jurisdictions where oversight and enforcement may be less stringent. The ANOVA test results (F = 17.362, p= 0.000) confirm that these differences are statistically significant, underscoring the meaningful variation in corporate tax avoidance behavior across the region. However, as previously noted, while Indonesian tax rates are relatively high among the four countries examined, the elevated CTAR percentage can be attributed to the limited number of companies. Economies 2025,13, 194 18 of 30 Table 4. ANOVA Test. Variable/Explanation 2-Year Average Score CTAR CTA COS POV LVG Per Country Indonesia 0.128 0.274 22.516 0.112 0.568 Malaysia 0.035 0.242 20.566 0.086 0.600 Singapore 0.097 0.141 22.355 0.053 0.647 Thailand 0.043 0.181 21.521 0.078 0.972 Overall 0.054 0.212 21.244 0.081 0.706 ANOVA test score 8.833 17.362 37.836 9.510 10.241 Sig 0.000 0.000 0.000 0.000 0.000 Per Industry Financials 0.051 0.222 23.118 0.047 0.874 Industrials 0.066 0.261 20.514 0.078 0.597 Real Estate 0.095 0.162 21.965 0.041 0.763 Communication Services 0.000 0.182 22.088 0.065 1.077 Consumer Staples 0.053 0.248 20.721 0.113 0.615 Information Technology 0.056 0.154 19.866 0.102 0.156 Consumer Discretionary 0.019 0.200 20.502 0.102 0.836 Utilities 0.038 0.136 22.159 0.056 1.284 Materials 0.028 0.233 20.717 0.085 0.447 Energy 0.085 0.264 22.045 0.103 0.772 Health Care 0.016 0.234 19.903 0.127 0.528 Overall 0.054 0.212 21.244 0.081 0.706 ANOVA test score 2.129 5.146 21.748 12.204 7.109 Sig 0.021 0.000 0.000 0.000 0.000 Within the individual sectors, the analysis of CTAR disclosure shows that the Real Estate (0.095) and energy (0.085) sectors have the highest average CTAR values, which indicates that companies in these sectors are more likely to formalize and disclose their tax policies. This is followed by the industrial (0.066) and Information Technology (0.056) sectors, indicating a moderate awareness of tax administration. Notably, the Communication Services sector reports a CTAR score of 0.000, indicating no formal tax administration disclosure, which could indicate a lack of transparency or the lower importance of tax administration. The ANOVA test (F = 2.129, p= 0.021) indicated statistically significant differences between the sectors, even though the differences were less pronounced for CTAR than for CTA. The analysis of CTA across sectors shows that the industrial (0.261) and energy (0.264) sectors have the highest average CTA values, which indicates more aggressive tax planning behavior. The Consumer Staples (0.248) and Materials (0.233) sectors also show a higher level of tax avoidance behavior for various reasons, such as complex supply chains or more extensive international activities. In contrast, sectors such as Real Estate (0.162) and Information Technology (0.154) show a more moderate level of tax avoidance, while utilities (0.136) show the most conservative approach. The ANOVA test (F = 5.146, p= 0.000) confirms that these differences are statistically significant, which Economies 2025,13, 194 19 of 30 emphasizes that companies’ tax avoidance is closely linked to the structural and strategic characteristics of the individual sectors. There are significant differences between countries and sectors in terms of CTAR and CTA, which illustrate different approaches to tax administration. Indonesia proves to be the most proactive country in terms of corporate tax administration disclosure (the highest CTAR), but it also records the highest level of tax avoidance (the highest CTA), an indication of a potential disconnect between administrative commitment and actual behavior. In contrast, Singapore has a moderate CTAR level and a lower CTA level, indicating a more balanced relationship between behavior and tax governance. From a sector perspective, energy, industrial, and Consumer Staples stand out with a higher CTA level, which could attract the attention of regulators and raise environmental, social, and governance (ESG) concerns related to financial risks and ethical behavior. Generally, there are specific tax regulations within sectors that would result in abnormal effective tax rates. Overall, the distribution of the ETR across industrial sectors remains at the 20% level, which aligns with the average normal tax rate in the countries studied. 4.1.4. Multiple Regression Prior to conducting the multiple regression analyses, it was essential to perform classical assumption tests. Given that the data under examination comprise combined data (annual averages), the classical assumption tests focus on three key aspects, normality, multicollinearity, and heteroscedasticity, as shown in Table 5. The normality test using the Kolmogorov–Smirnov method yielded a significance value of 0.007, that is, less than 0.05, which indicates that the residuals are not normally distributed. However, non-normality in the regression test can be disregarded because the sample size exceeds 200 observations, as achieving normality in large samples is challenging because of the asymptotic nature of the test statistics. Multicollinearity tests yielded Variance Inflation Factor (VIF) values between 1.124 and 1.481, which are well below the critical threshold of 10. This indicates that multicollinearity is not a problem, and that the independent variables are not strongly correlated with each other; this assumption is fulfilled. The heteroscedasticity test resulted in a significance value of 0.01, which was less than 0.05, indicating the presence of heteroscedasticity. Heteroscedasticity is addressed through the application of the Huber–White heteroscedasticity error correction, which statistically adjusts regression models exhibiting heteroscedasticity. Because two of the three classical assumption tests are satisfied, the regression analysis can be continued appropriately. Table 5. Classical assumption test. Classical Assumption Test Score Criteria for Good Fit Test Result Normality test (Kolmogorov–Smirnov test) 0.007 sig > 0.05 Not passed Multicollinearity test (Variance Inflation Factor) 1.124–1.481 VIF < 10 Passed Heteroscedasticity test (Huber–White test) 0.01 sig > 0.05 Not passed The multiple regression analysis in Table 6provides information on the factors that influence CTA. The model yielded an adjusted R-squared of 0.021, which means that only 2.1% of the variation in CTA was explained by the independent variable, CTAR, and the control variables, COS, POV, and LVG. Despite the low explanatory power, the overall model was statistically significant at the 5% level (F-statistic = 2.455, p= 0.046), indicating that the independent variables had an overall significant relationship with CTA. The CTAR variable exhibits a positive coefficient, indicating that an increase in a company’s tax administration value corresponds to a higher effective tax rate, implying a reduced Economies 2025,13, 194 20 of 30 likelihood of tax avoidance by the company. CTAR significantly influenced CTA, thereby supporting Hypothesis 1. Among the three control variables, only COS was statistically significant, whereas POF and LVG were not statistically significant. The negative coefficient of COS suggests that companies with substantial corporate assets tend to have a lower effective tax rate, indicating tax avoidance. This observation is plausible, because the company’s assets reflect its substantial economic capacity, making tax savings more critical for such entities (Hossain et al.,2024). Table 6. Multiple regression analysis results. Variable Coefficient Std. Error t-Statistic Prob. C 0.402 0.102 3.929 0.000 CTAR 0.058 0.022 2.582 0.010 COS −0.009 0.005 −2.002 0.046 POV −0.158 0.127 −1.240 0.216 LVG 0.011 0.010 1.135 0.257 Adjusted R-squared 0.020652 F-statistic 2.455013 Prob (F-statistic) 0.046134 4.1.5. Logistic Regression Logistic regression analysis was performed to evaluate Hypothesis 2. This method does not require the application of classical assumption tests, allowing for direct examination of the constructed logistic regression model. Table 7presents the results of this analysis. Table 7. Logistic regression analysis results. Variable Coefficient Std. Error z-Statistic Prob. C−15.938 2.593 −6.147 0.000 CTA 3.478 1.442 2.412 0.016 COS 0.589 0.111 5.296 0.000 POV 7.618 2.657 2.867 0.004 LVG 0.112 0.228 0.489 0.625 McFadden R-squared 0.152089 H-L statistic 9.7884 Prob. Chi-Sq(8) 0.2802 LR statistic 36.88351 Prob (LR statistic) 0.000 However, the logistic regression model was evaluated using the McFadden and Hosmer–Lemeshow tests. The McFadden R-squared value is 0.152, which is modest but acceptable for logistic regression models and suggests an appropriate fit for behavioral or administration-related outcomes. The result of the Hosmer–Lemeshow test ( H-L statistic = 9.7884 ,p= 0.2802) was not significant and indicated a good fit of the model. The predicted values agreed well with the observed data, suggesting that the model was adequately fitted for analysis. The logistic regression model was statistically significant overall, with a Likelihood Ratio (LR) statistic of 36.88 (p= 0.000), indicating that the predictors jointly contribute Economies 2025,13, 194 21 of 30 meaningfully to explaining the outcome. The results revealed that the effect of CTA on the CTAR was statistically significant. A positive coefficient indicates that a lower level of tax avoidance (characterized by a higher CTA value) leads to a more stringent administration of corporate tax. Among the three control variables, only COS and POF are significant, demonstrating the positive influence of assets and profitability on the administration of corporate tax. Conversely, LVG did not have a significant effect on CTAR. It is evident that the administration of corporate tax represents an investment that requires integration into a company’s information systems, governance, and operational procedures, which requires substantial resources and favorable company conditions for effective implementation (Xu et al.,2023). 4.1.6. Robustness Test: Simultaneous Equation Model Table 8presents the results of the simultaneous equation tests. For Hypothesis 1, the regression results show that the RES1 variable is statistically significant at the 5% level (t-statistic = − 3.977, p= 0.000). The coefficient of CTAR was also significant ( coefficient = 0.693 , t-statistic = 4.302, p= 0.000). The direction of this coefficient was consistent with the results reported in Table 6, confirming that CTAR is endogenous to CTA. For Hypothesis 2, the initial regression results indicated a “complete separation detected at the estimated parameter” warning, suggesting that the results may not be valid. Therefore, a robustness test was conducted using a Linear Probability Model (LPM) as an alternative. Although not ideal, OLS with CTAR as the dependent variable can serve as a fallback when nonlinear models fail because of separation issues (Bun & Harrison, 2018). The regression results show that the RES2 variable is statistically significant at the 5% level ( t-statistic = −7.110, p= 0.000). The coefficient of CTA was also significant ( coefficient = 4.886 , t-statistic = 7.333, p= 0.000). The direction of this coefficient aligns with the findings in Table 7, confirming that CTA is endogenous to the CTAR. Based on these tests, it can be concluded that a simultaneous relationship exists between CTAR and CTA. Table 8. Simultaneous equation model results (stage 2 only). Variable Coefficient Std. Error t-Statistic Prob. For the 1st hypothesis (dependent variable = CTAR) C 1.387 0.268 5.171 0.000 CTAR 0.693 0.161 4.302 0.000 COS −0.057 0.013 −4.406 0.000 POV −0.751 0.195 −3.851 0.000 LVG 0.009 0.010 0.906 0.365 RES1 −0.638 0.160 −3.977 0.000 For the 2nd hypothesis (dependent variable = CTAR) CTA 4.886 0.666 7.333 0.000 COS −0.038 0.006 −5.915 0.000 POV −0.466 0.313 −1.484 0.139 LVG −0.007 0.031 −0.228 0.820 RES2 −4.886 0.687 −7.110 0.000 4.2. Discussion In general, the results show that there is a simultaneous relationship between the administration of corporate tax and corporate tax avoidance. Before discussing the results Economies 2025,13, 194 22 of 30 of the hypothesis testing for each model, there are several interesting points in this research. First, this study proves that the disclosure of corporate tax administration in Indonesia, Malaysia, Singapore, and Thailand is still very low; the level of disclosure is between 0 and 20%. Disclosure is mostly performed only in tax administration commitments and statements and has not yet entered the core aspects of tax supervision by the company or information related to special corporate tax audits. Corporate governance and ownership structure play significant roles in determining disclosure levels. Firms strategically manage their disclosure environments to offset their potential reputational costs. When mandatory disclosures are incomplete, companies may voluntarily issue additional information to maintain control over their disclosure narratives (Kays,2021). This selective disclosure approach can result in lower overall transparency, particularly regarding tax policies. The ascension of corporate general counsel (GC) to top management is associated with increased tax aggressiveness, including greater book–tax differences and a higher likelihood of engaging in tax shelter activities (Bagnoli & Watts,2007). This contradicts the expectation that having a GC in the top management would lead to more conservative tax practices and increased disclosure. Previous research shows that the low level of corporate tax administration disclosure in some companies can be attributed to factors such as concentrated ownership, the strategic management of disclosure environments, and the ineffectiveness of certain governance mechanisms in promoting transparency (Hassan et al.,2008;Kolsi, 2017;Mgammal et al.,2018). Second, this study proves that the good administration of corporate tax can reduce tax avoidance in companies. The good administration of corporate tax, particularly when aligned with corporate social responsibility (CSR) principles, can help mitigate aggressive tax avoidance. Rudyanto (2024) demonstrates that disclosing tax payments in Global Reporting Initiative (GRI)-based sustainability reports reduces aggressive tax avoidance. This suggests that transparency and accountability in tax reporting as part of a broader CSR strategy can discourage companies from engaging in excessive tax avoidance practices. The good administration of corporate tax can contribute to reducing tax avoidance, and its effectiveness may depend on various factors, including the existing level of tax avoidance, the specific policies implemented, and the broader corporate governance framework. Incorporating tax planning into corporate social responsibility frameworks—termed “good tax governance”—can foster a moral mindset and enhance accountability and transparency, potentially leading to more responsible tax practices (Gribnau & Jallai,2017). Third, this study proves that companies that engage in tax avoidance tend to have a low level of corporate tax administration disclosure. Corporate tax avoidance is often associated with reduced transparency and disclosures. Companies involved in aggressive tax planning may be reluctant to provide detailed information on their tax strategies to avoid scrutiny (Oats & Tuck,2019). The lack of transparency in tax affairs can be seen as a way for firms to conceal their tax avoidance activities from stakeholders and regulators. Research has shown that tax avoidance behavior can increase agency costs and reduce firms’ value, particularly in contexts with weaker governance structures (Chen et al.,2014). To mitigate these negative effects, companies engaging in tax avoidance may choose to limit their tax administration disclosures in order to avoid drawing attention to their practices. This indicates that firms engaging in tax avoidance may prioritize other forms of disclosure over specific tax administration disclosures to maintain their legitimacy. The introduction of country-by-country reporting (CbCr) requirements has been shown to increase effective tax rates among affected firms (Joshi,2020). This finding suggests that increased disclosure requirements can deter tax avoidance, implying that companies engaging in such practices may prefer to maintain lower levels of tax administration disclosure. Companies engaging in tax avoidance tend to have lower levels of corporate tax administration disclosure, as Economies 2025,13, 194 23 of 30 they seek to minimize scrutiny, maintain legitimacy, and avoid the potential negative consequences associated with their tax planning strategies (Payne & Raiborn,2015;Dyreng et al.,2016;Overesch & Wolff,2021). Fourth, the control variable in the first model results shows that companies’ size and profitability affect the creation of the good administration of corporate tax, but leverage has no effect on the creation of the good administration of corporate tax. This suggests that larger firms may have more resources and opportunities to implement sophisticated tax strategies, thus influencing their tax administration decisions (Shubita,2024). Profitability also has a significant effect on tax-related decisions. Profitable companies may have greater incentives and means to develop tax policies that minimize their tax burden (Rego,2010). Fifth, the control variables in the second model also show that companies with large assets tend to practice tax avoidance, while profitability and leverage have no effect on the level of corporate tax avoidance. Larger firms have access to better tax expertise, more complex organizational structures, and a greater ability to shift profits across jurisdictions, enabling them to reduce their effective tax rates (Hossain et al.,2024). As Alarussi and Gao (2021) suggest, there might be an inverted U-shaped relationship between leverage and profitability, which depends on the balance between the benefits and cost of debt. This complexity could explain why some studies found significant relationships, while others did not. Fifth, the interaction between the administration of corporate tax (CTAR) and corporate tax avoidance (CTA), measured using the effective tax rate (ETR), presents notable variation across the four Southeast Asian countries included in this study: Indonesia, Malaysia, Singapore, and Thailand. In this research context, a higher ETR reflects a lower degree of tax avoidance, indicating a greater degree of tax compliance. Among the countries analyzed, Indonesia demonstrated the highest average values for both CTAR (0.128) and CTA (0.274). This finding suggests a strong alignment between enhanced tax administrative practices and reduced tax avoidance. This result may reflect Indonesia’s recent reforms to strengthen its tax authority, expand digital reporting systems, and increase its audit coverage (Hutagaol, 2025). This consistency supports the hypothesis that improvements in tax administration are associated with increased tax compliance. By contrast, Singapore showed a divergent pattern. Although it recorded a moderately high CTAR score (0.097), it also showed the lowest CTA value (0.141), implying higher levels of tax avoidance. However, this observation should not be interpreted as an indication of administrative weaknesses. Rather, it likely reflects the unique features of Singapore’s tax regime, which is characterized by internationally competitive tax incentives, robust tax planning frameworks, and the widespread use of legally sanctioned mechanisms such as tax holidays and preferential rates for intellectual property income (Diller et al.,2025). These policy instruments contribute to lower ETRs without necessarily indicating noncompliance or aggressive tax behavior. Malaysia and Thailand occupy intermediate positions. Malaysia has a relatively low CTAR (0.035) with a moderate CTA (0.242), suggesting that factors beyond formal tax administration, such as industry-specific tax incentives, voluntary compliance behavior, or firm-level governance mechanisms, may influence corporate tax practices (Cheong et al., 2020). Similarly, Thailand has a low CTAR score (0.043) and moderately low CTA (0.181), potentially reflecting limitations in tax enforcement capacity and compliance oversight (Nkundabanyanga et al.,2017). The mixed pattern observed in these two countries points to the possibility of moderating effects from institutional, political, or sectoral variables that shape the tax compliance environment. Collectively, these findings reinforce the notion that the relationship between tax administration and tax avoidance is context-specific and is shaped by institutional, regulatory, and market dynamics. Strengthening the administration of corporate tax is a vital mechanism for promoting compliance in jurisdictions such as Economies 2025,13, 194 24 of 30 Indonesia and Thailand, where the tax enforcement capacity may evolve. In contrast, in high-governance countries, such as Singapore, lower ETRs may be attributable to policydriven tax planning strategies rather than weak administration, highlighting the distinction between administrative enforcement and intentional tax competitiveness. Sixth, although the adjusted R 2 and McFadden R 2 values in this study are relatively low (0.02 and 0.15, respectively), this does not diminish the validity of the analysis. In behavioral and governance-related research, particularly in the area of tax avoidance, it is common to encounter a low explanatory power owing to the complexity and unobservability of managerial decision-making, firm-specific strategies, and regulatory environments (Khurana et al.,2018). The primary objective of this study is not to predict outcomes with high precision but to examine statistically significant and theoretically grounded relationships between the administration of corporate tax and tax avoidance. Low R 2 values are acceptable in this context, as long as the estimated coefficients are consistent, robust, and aligned with the theory. Furthermore, the inclusion of endogeneity-robust estimators, such as the control function approach and instrumental variables, enhances the credibility of the findings, despite the modest variance explained by the model. 5. Limitations Despite the contributions of this study to the understanding of the administration of corporate tax and tax avoidance in Southeast Asia, several limitations must be acknowledged. These limitations relate primarily to the nature of the data, measurement proxies, and methodological scope, and they offer avenues for future research to build upon and strengthen the findings presented here First, this study focuses exclusively on tax avoidance, which involves the legal use of tax planning strategies to minimize tax liabilities. It is important to distinguish this from tax evasion, which refers to illegal actions such as concealing income or falsifying records. Since the data used in this research are based on the publicly disclosed financial statements of listed firms, the analysis does not and cannot capture tax evasion behaviors. Future research examining tax evasion would require access to enforcement, audit, or confidential administrative data typically held by tax authorities. Second, the use of the effective tax rate (ETR) as a proxy for tax avoidance is based on financial data reported at the jurisdictional level. As such, this metric does not account for profits shifted abroad through transfer pricing mechanisms, which are widely recognized as the primary tax avoidance strategy among multinational firms in Southeast Asia. Furthermore, the ETR reflects tax paid on income already shifted out of the reporting jurisdiction, rather than pre-shift income. Due to the lack of access to consolidated global financial reports or country-by-country reporting (CbCR) disclosures, this study relies on nationallevel data. Future research may improve its accuracy by using group-level financial data, OECD CbCR filings (where available), or alternative proxies such as book–tax differences, cash ETR, or measures that adjust for intercompany transactions and tax haven exposure. Third, some observed reductions in ETR may stem not from aggressive avoidance but from government-sanctioned tax incentives, such as R&D deductions, tax holidays, or accelerated depreciation policies. These policy-induced reductions are intended outcomes of economic strategies rather than indicators of avoidance. Without granular disclosure on tax expenditures, it is difficult to disentangle strategic avoidance from policy incentives. Future research should consider controlling for the presence of such incentives or analyzing footnotes and segment disclosures that explain the composition of the tax burden. Fourth, the measurement of the administration of corporate tax (CTAR) is derived from disclosure-oriented indicators available in the Refinitiv Eikon database. These indicators are based on firms’ voluntary disclosures and may reflect reputational or investor-relations