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The Role of Political Costs in the Deferred Tax Policy Choice

Author

Listed:
  • Baljit K. Sidhu

    (Australian Graduate School of Management, UNSW. Sydney, NSW 2052.)

  • Greg Whittred

    (Faculty of Commerce, University of New South Wales, Sydney, NSW 2052.)

Abstract

This paper demonstrates that (time- and context-specific) ‘political costs' were instrumental in the entry of deferred tax accounting into Australian GAAP in the early 1970's—a period in which high profits and low corporate taxes coincided in a volatile political mix. Politically exposed companies (of large size, with low effective tax rates, particularly in the mining industry) with the ability to reduce their exposure through deferred tax accounting (if it was tax-expense increasing), adopted the method. Companies for whom adoption would be tax-expense reducing, either deferred adoption to a less politically sensitive period or adopted with the average impact being such as to not lower their reported tax rate below that of the average rate of non-adopters.

Suggested Citation

  • Baljit K. Sidhu & Greg Whittred, 2003. "The Role of Political Costs in the Deferred Tax Policy Choice," Australian Journal of Management, Australian School of Business, vol. 28(1), pages 63-82, June.
    • Handle: RePEc:sae:ausman:v:28:y:2003:i:1:p:63-82
    DOI: 10.1177/031289620302800103
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    References listed on IDEAS

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    Cited by:

    1. Cheryl Chang & Kathleen Herbohn & Irene Tutticci, 2009. "Market's perception of deferred tax accruals," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 49(4), pages 645-673, December.

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