ESG Integration and Tax Governance in Malaysia: A Systematic Review of Environmental Regulations, Corporate Governance, and Social Responsibility

Abstract

This systematic review investigates the interplay between Environmental, Social, and Governance (ESG) considerations and tax practices in Malaysia, in particular, environmental regulations, corporate governance practices, and social responsibility practices. Although Malaysia plans to achieve a 45 percent reduction of its carbon intensity and the attainment of net-zero emission by 2030 and 2050 respectively, the relationship between ESG considerations and tax governance has not been studied thoroughly. This review is based on a systematic analysis of 50 highly relevant peer-reviewed articles published since 2017 through which the existing research on the impact of ESG dimensions on tax planning, compliance, and transparency in Malaysian corporations has been synthesized. The results indicate that corporate governance practices, especially the board diversity, independence, and gender representation, have a great impact on improving tax compliance and the quality of ESG disclosures. Laws on the environment encourage tax incentives like the Green Investment Tax Credit (GITA) which has the shortcoming of insufficient use and lack of penalty provisions. Social responsibility programs are associated with less aggressive tax avoidance and greater stakeholder trust, although there is a varying perception of CSR-tax relationships between different stakeholder groups. ESG reporting systems have improved the transparency of tax governance that is still not consistent because of voluntary reporting and differences in sectors. The regulative framework is biased to incentives as opposed to penalties, and enforcement failures to provide overall ESG-tax alignment. The contribution that this review makes to the literature is the context-specific insight into the ESG-tax dynamics in Malaysia, the identification of gaps in research, and practical guidance to the policymakers, business executives, and future researchers. The results are useful in the formulation of a combined framework that will harmonize sustainability goals with financial commitments in the emerging economies.