PERTANIKA JOURNAL OF TROPICAL AGRICULTURAL SCIENCE

Globally, the corporate tax planning activities remain unresolved issues faced by the various tax authorities. In Malaysia, these issues have received serious attention from policymakers, especially among the tax authorities concerned with either direct or indirect taxes. The transformations in the tax systems and accounting standards have given companies opportunities to manage their tax affairs for the benefit of their shareholders. Hence, using the longitudinal approach, this study analysed tax expense and financial ratios of 4,500 firmyears from publicly listed companies prepared for the years 2001 to 2012. A company's tax planning is reflected in its Effective tax rate reported in the financial statements. Thus, the difference between the statutory tax rate and the effective tax rate shows the gap which indicates the level of aggressive tax planning undertaken by the companies. The statistical results from the pooled OLS regression model disclosed that financial ratios such as inventory intensity, capital intensity, leverage and research, as well as development expenditure have a significant relationship with the level of companies' tax expense. Thus, the findings implied that companies' financial ratios could be used as red flags to identify aggressive tax planners which can be further investigated for potential tax frauds.