THE INTERSECTION OF CAPITAL INTENSITY, PROFITABILITY, AND TAX MANAGEMENT IN MALAYSIA’S TELECOM SECTOR

Abstract

Capital intensity and profitability are two important variables that affect a company's effective tax rate. Greater capital intensity can reduce the tax burden through advantages like depreciation whereas profitability affects the tax liability based on earnings. For understanding effective tax management strategies, it is important to investigate the relationship between capital intensity, profitability and tax management. Therefore, this study examines how capital intensity, profitability, firm size, and leverage affect tax management as indicated by the effective tax rate (ETR) in selected Malaysian telecommunications companies. This study uses a quantitative approach to evaluate the impact of these structural and financial factors on tax management techniques using annual data for four large telecom companies from 2011 to 2023. The results show a strong inverse link between ETR and profitability, suggesting that more successful businesses typically reduce their tax obligations, possibly as a result of smart tax planning techniques. Leverage and firm size have positive correlations with ETR, indicating that larger and more leveraged companies pay higher tax rates, maybe as a result of more funding commitments or regulatory scrutiny. However, ETR is not greatly impacted by capital intensity, suggesting that telecom companies' capital-intensive structure may not have a direct impact on how they handle taxes. These observations are especially pertinent to policymakers because they point out the possible tax benefits that highly successful companies may take advantage of and recommend a need for balanced tax policies.