Tax avoidance practices in textile sector of Pakistan

Abstract

The final year project is based on Tax avoidance practices on textile sector in Pakistan. The significance and purpose of this project is to study textile sector and taxation and understand how relevant both of them are together and why it is necessary for both the sector to work together for the betterment of the country. After researching on relevant topics, preparing in this project; the project will be discussing our understanding of the topic and identifying the problems as well as finding solution for those. The basic idea behind choosing this topic was too understand how the textile sector tax avoidance practices which has been profit making sector for over a decade has been suddenly diminishing for last 6-7 years. The idea of trying to reduce an organization’s tax expense is considered as old as the inception of taxation itself as organizations are always trying to exploit loopholes in the complexities of the existing tax system. The traditional motive for such practices is to reduce expenses, thereby increasing the firm’s net profit. In view of this, tax avoidance has always been considered as being in the interest of the shareholders, as it is intended to increase value. However, this view has greatly been questioned in recent researches. Taking data from the annual reports and financial statements of Textile sector, we empirically tested whether tax avoidance of a firm really translates to increase in value or profitability. Employing a standard Ordinary Least Square regression model, we test our hypotheses using SPSS statistical tools. Our findings confirmed a negative relationship between the tax avoidance measure (ETR) and the measure of profitability (ROA). We conclude that tax avoidance could translate into profitability or value due to the balance of expertise and professionalism exhibited. We recommend that a firm need to have a good corporate governance structure in place, particularly the board structure, since they are in a better position to influence management’s decisions and actions, in order to achieve the intended benefits of such practices. The project would start our project with introducing the topic and then would be discussing other subtopic of this project and at the last it would be concluding our project with recommendation.