FACTORS-FACTORS
AFFECTING TAX AVOIDANCE
Universitas Trisakti,
Indonesia
Email: [email protected],
[email protected], [email protected], [email protected],
[email protected]
KEYWORDS Tax
avoidance, executive character, thin capitalization, book tax gap. |
ABSTRACT �This study aims to analyze and
prove empirically (1) the effect of executive character on Tax Avoidance, (2)
the effect of thin capitalization on Tax Avoidance and (3) the effect of the
book tax gap on Tax Avoidance. This research method is carried out by taking
secondary data, namely manufacturing companies listed on the Indonesia Stock
Exchange for the period 2018 2020. The data collection technique uses the
purposive sampling method and the method used in analyzing is the multiple
regression analysis method. The results show that the executive character and
thin capitalization have a positive effect on tax avoidance. while the book
tax gap has a negatif influence on tax avoidanc. So the H3 in this study was rejected. Based on the
results of the partial test, the research shows that the effect of the book
tax gap on tax avoidance is a negative effect, which means that the larger
the book tax gap in the company, the no indication of an increase in tax
avoidance |
INTRODUCTION
Taxes are an important part of
the country's revenue structure. From year to year tax
revenues have an increasingly large proportion in state revenues. Apart from
being a state revenue (budgetair function),
the tax function is also a tool in regulating or implementing government
policies in the social and economic fields (regular function). So, the
achievement of the tax revenue target is important to ensure the fulfillment of
the tax function for the greatest prosperity of the people as mandated in Law
No.6 of 1983 concerning General Provisions and Tax Procedures (KUP Law) article
1.
However, in pursuing
the state revenue target, the government is constrained by several factors, one
of which is tax avoidance. Tax avoidance is the ability to pay a low amount of
tax compared to the pre-tax profit on a company through a series of management
actions to downplay its outstanding taxes. Management conducts tax avoidance
practices by exploiting loopholes in tax regulations to significantly reduce
taxes. It can be said that tax avoidance is the behavior of taxpayers to reduce
the tax burden but not violate tax regulations. Tax avoidance is one of the
factors that there are still countries that apply low tax rates, thus
triggering multinational companies to make investments or divert income to the
country.
The Tax Justice
Network (or TJN) is an advocacy group consisting of a coalition of researchers
and activists that has a focus around taxes such as tax avoidance, tax
competition, and tax exemption. The Tax Justice Network's findings state that
in practice multinational companies shift their profits to countries that are
considered tax havens. The goal is not to report how much profit is actually
made in the country where it does business so that the corporation will
eventually pay less tax than it should.
Currently, the Directorate
General of Taxes monitors these special transactions based on financial
information data that exists abroad, this effort utilizes relations between
countries. In this case, Indonesia and treaty partner countries exchange
information related to the transaction.
An executive is an
individual who is in a very important position in a company because the
executive has the highest authority and power to regulate the operations of his
company. Executives have a great influence on the company being led so this
executive plays a very important role in being able to coordinate his
subordinates. The executive determines the direction of the company so that the
executive must be precise in making decisions and policies in the company. Each
individual certainly has a different character as well as each executive who
has a different character in leading his company.
Executive characters
have two types, namely risk taker and risk averse. The risk taker character is
an executive character who is brave or likes to take risks in his decisions.
Meanwhile, risk averse is an executive character who lacks courage in taking
risks. Executive characters with risk taker characteristics will be more
courageous in taking or doing anything in order to get the greatest benefit so
that they are more courageous in taking risks even though the risks taken are quite large and have
large negative risks as well. Vice versa, executive characters who have a risk
averse type, are more likely to play safe, or choose to follow the rules and
don't like to take big risks.
According to the OECD (2012), thin capitalization is the
action of a company to use more debt than equity in a company's funding source.
The practice of thin capitalization by companies can be used as one of the tax
avoidance strategies because debt can provide tax incentives for companies
through the ability of loan interest expense to reduce taxable income (tax
shield).
In addition to the executive character and thin
capitalization, one of the growing issues regarding the analysis of tax
regulations that has attracted a lot of attention is the book-tax differences
or book-tax gap, which is the difference between recording taxable income or
company profits according to the tax point of view based on tax laws and
regulations and recording income before taxation or corporate profits before
taxation according to accounting standards in Indonesia. Tax and accounting
laws and regulations have different points of view and objectives so that these
differences appear in almost all countries with regulations that are certainly
different as well as their application in each country, both from the
application of taxes and accounting. The occurrence of the book-tax differences
phenomenon or book-tax gap causes differences in the results of financial
statements, causing an opportunity for management to increase the company's
profit and profit quality on financial statements in accounting and reduce
profits in terms of taxation.
(Sugiyanto
en Fitria 2021) conducted a study to see the
relationship between executive character and tax avoidance carried out by food
and beverage sector manufacturing companies listed on the Indonesia Stock
Exchange in 2017 \u2012 2018. The results of the study on executive character
variables had a significant negative effect on the dependent variable, namely
tax avoidance. This shows that if the executive is more risk taker, the greater
the tax avoidance action will be carried out. The size of the company's risk indicates
a tendency to executive character. A large level of risk indicates that the
company's leadership is more of a risk taker who is more willing to take risks.
This is in line with research
conducted by (Sugiyanto en Fitria 2021)
which shows that executive character negatively affects tax avoidance.
(Hidayat en Mulda 2019)
conducted a study to see the relationship between the book-tax gap and foreign
ownership with tax avoidance carried out by food and beverage sector
manufacturing companies listed on the Indonesia Stock Exchange in
2017\u20122018. The results of the study for foreign ownership variables did
not have a significant effect on tax avoidance in food and beverage sector
manufacturing companies listed on the IDX in 2017\u2012 2018 based on partial
testing. However, for variable book-tax gap has a relationship to tax avoidance
In simultaneous testing of foreign ownership and
book-tax gap has an influence on tax avoidance or tax avoidance.
Based on news and problems related to state revenues in the tax sector
which often experience an erratic decline or increase, especially during a
pandemic that attacks the world economy, with the leeway given by the
government in utilization to reduce the tax burden borne by companies because
the economy in all aspects of business has decreased income, which is feared to
be increasingly intensive tax avoidance carried out� by corporate as well as personal
taxpayers. Therefore, the author wants to discuss how the influence of
Executive Character, Thin Capitalization and Book Tax Gap on Tax avoidance.
This study aims to obtain empirical evidence regarding: The influence of
executive character on Tax Avoidance, The effect of thin capitalization on Tax
Avoidance, The effect of book tax gap on Tax Avoidance.
Agency Theory
Agency Theory is a concept that
describes the employment relationship between the agent (manager) and the
principal (company owner), where the relationship is governed by a contract to
carry out company activities (Jensen en Meckling 2019).
The management of a company often creates conflicts of interest between the
owner and the manager. This conflict in agency relationships can be attributed
to game theory, which is a theory that models the interaction between two or
more players when there are conditions of uncertainty and information
asymmetry, where each player is assumed to have a desire to maximize the
benefits of expectations (Scott, 2015).
The essence of agency theory is
that there are differences in interests between agent and principal (agency
conflict). Shareholders as principals are assumed to be interested only in
financial results in the form of increased dividend distributions. The manager
as an agent is assumed to receive satisfaction in the form of high financial
compensation and accompanying conditions in the relationship. Agency theory
implies that there is an asymmetry of information between the manager as an
agent and the owner as a principal which occurs due to differences in interests
between managers and company owners which can trigger agency conflicts.
The difference in point of view
between shareholder thinking and company management can influence management to
set policies in achieving company performance, one of which is tax policy.
Shareholders want management to comply with tax regulations, while company
management will exploit existing loopholes in tax regulations in order to
minimize tax payments by conducting tax avoidance.
Tax Definition
According to Law Number 6 of 1983
as last amended by Law Number 11 of 2020 concerning General Provisions and Tax
Procedures in article 1 paragraph 1:
Taxes are mandatory contributions
to the state owed by private persons or entities of a coercive nature under the
Law, with no direct remuneration and are used for state purposes for the
greatest prosperity of the people
Taxes are mandatory and are
implemented based on laws and regulations. There are two main functions of
taxes, namely the revenue function (budgeter) and regulating (regular).
Budgeter means that taxes serve as a source of funds for the government to
finance its expenses. While the regular function means tax as to regulate or
implement government policies in the social and economic fields (Mardiasmo 2021).
Tax Avoidance
In general, the measure of
compliance with meeting tax obligations is usually measured and compared to the
size of tax savings, tax avoidance and tax evasion, all of which aim to
minimize the tax burden.
The desire of taxpayers to not
comply with tax regulations makes there a tax resistance they provide.
Resistance to taxes can be divided into two namely, passive resistance and
active resistance. Passive resistance is in the form of obstacles that make it
difficult to collect taxes and have a close relationship with the structure of
the economy. Meanwhile, active resistance is all efforts and actions that are directly
shown to the government (fiscus) with the aim of avoiding taxes. There are 3
ways of active resistance, namely tax avoidance, tax evasion, and tax evasion.
From an economic point of view,
tax avoidance, tax evasion, and tax flight have the same effect, namely they
are both actions to reduce the value of profits with the aim of reducing the
tax burden. But from the legal and moral side, the three terms have different
meanings and levels of justice. Tax avoidance is defined as an effort to reduce
tax payments in a legally permissible way, namely by taking advantage of
existing regulatory loopholes.
Executive Character
Executive characteristics include
psychological characteristics such as cognition and executive value, and can be
observed externally. As decision makers and executors of a company, executives
are directly responsible for the financial performance and operations of the
company (Arena, Wang, en Yang 2021).
The executives of the company contribute greatly in running the company because
they have the highest position in decision making. Executives have two
characteristics, namely risk-takers or risk aversion. This is reflected in the
risks of the company. The greater the risk of the company, the more executives
take risks (Maharani en Baroroh 2019).
According to (Prihartono 2020)
executive character is something that makes a person qualified and becomes a
fixed trait, executives have diverse qualities and styles in decision making.
Each leader has certain characteristics to provide direction in carrying out
business activities in accordance with the goals to be achieved by the company.
The executive determines the number of alternative policy options and measures
the magnitude of the risks that will be faced by certain characteristics (Sugiyanto en Fitria 2021). Each manager has
different characteristics. It is stated that each individual has one of two
characteristics, namely risk taker or risk averse (Fitria, Taufik, en Siddik 2019). Executives who
have the characteristics of being risk-takers will be more willing to take
risks in decision making. In addition, the executive nature of risk-takers has
a desire to meet high cash flow needs. On the other hand, risk averse is a
characteristic of executives who do not like risk, so in business decision
making these executives will prefer to make smaller risk decisions. Executives
who are risk averse will prefer to avoid all sorts of opportunities that have
the potential to pose risks and prefer to have most of the assets they have in
relatively safe investments to avoid funding from debt, uncertainty of the
amount of return and so on. Factors that influence executive psychology in
carrying out tax avoidance due to the high tax rate that applies. On the other
hand, if the applicable tax rate is low enough, psychologically the taxpayer
will fulfill the obligation to pay taxes.
Thin Capitalization
According to the OECD (2012),
thin capitalization is a situation where a company is financed by a higher
level of debt compared to capital. This understanding is in line with the
notion of thin capitalization contained in the research of (Denney en Tewksbury 2013). The company's
strategy in obtaining financing has an impact on the level of corporate taxable
income. Tax regulations allow interest expense as a deduction from income
(deductible). Conversely, if the company obtains financing through equity, the
dividends distributed cannot be a deduction from income for tax calculations
(nondeductible).
The higher the level of debt in
the company, the higher the interest expense that must be paid which results in
lower fiscal profits (OECD, 2012). In line with this, a company's funding
policy will affect the effective tax rate (ETR) because taxes have different treatment
related to the capital structure of a company. A low ETR is an indication of
tax avoidance in a company. In other words, funding policies have an influence
on tax avoidance carried out by companies.
According to (Fama en French 2002), the optimal
capital structure can be identified through the benefits of debt interest tax
deductions and bankruptcy costs. The concept of trade-off in balancing theory
is to balance the benefits and costs of using debt in the capital structure so
it is also referred to as trade off theory (Brigham, Conlon, en Farquharson 1999).
In addition to being able to save taxes with interest costs as a deductible
expense, high levels of debt can result in conflicts between shareholders and
debtors, requiring agent fees in resolving the conflict.
Book Tax Gap
Book tax differences themselves
are manifestations of temporary differences and permanent differences. This
temporary difference can occur due to the difference in the time of income
recognition and expense recognition between fiscal financial statements and
commercial financial statements, while permanent differences occur due to
different policies regulated in financial accounting standards and regulations
in the field of taxation (Jati en Murwaningsari 2020).
Differences in financial statements can be permanent because not all revenues
or costs recognized according to accounting are also recognized according to
fiscal. Meanwhile, temporary differences occur as a result of differences in
the timing of revenue recognition or costs in calculating the amount of profit.
A temporary tax gap book can reveal the flexibility of accounting accruals (Hidayat en Mulda 2019).
In addition to some differences
in commercial and fiscal financial statements, the deduction of an expenditure
is not black and white as stated in the regulations. In the extreme, according
to (Santoso 2019)
even companies can perform aggressive 'transfom non-deductible to deductible
expense' techniques if there is an opportunity for loopholes in a rule.
Especially the taxpayer's 'judgement' plays a role in determining whether a
deduction fee can be charged fiscally or not.
Hypothesis Development
The Effect of Executive Character on Tax Avoidance
Tax avoidance carried out by
companies cannot be done apart from the role of leaders or executives in
decision making. The executive must determine the number of alternative policy
options and measure the magnitude of the risks that will be faced by certain
characteristics. Each manager has different characteristics. It is stated that
each individual has one of two characteristics, namely risk taker or risk
averse. Executives who have the characteristics of being risk-takers will be
more willing to take risks in decision making. In addition, the executive
nature of risk-takers has a desire to meet high cash flow needs. High cash flow
will be obtained from tax avoidance activities by increasing tax savings. On
the other hand, risk averse is a characteristic of executives who do not like
risk, so in business decision making these executives will prefer to make
smaller risk decisions. Executives who are risk averse will prefer to avoid all
sorts of opportunities that have the potential to pose risks and prefer to have
most of the assets they have in relatively safe investments to avoid funding
from debt, uncertainty of the amount of return and so on. When managers with a
risk averse character are given the opportunity to choose an investment, this
character will tend to choose an investment far below the risk that the company
can tolerate. According to agency theory, differences in interests can be a
factor in the occurrence of deviations in executive behavior. Deviations that
occur in realization compared to the planned one, in particular in the area of
the company's revenue. The greater the deviation that occurs from the initial
plan that the company has predicted, it can mean that the company's risk is
greater. Large company risks are a direct impact of the policies taken by the company's
management, so that if the company's risks are large enough, it can be said
that the company's management is parties who are quite willing to take risks,
and vice versa for low-risk companies. In carrying out tax avoidance, the
dominant characteristic is a risk taker with the assumption that tax avoidance
can be done legally (tax avoidance) even in an extreme way that utilizes
'judgement' assuming that the truth is decided by the judge through disputes
and loopholes contained in a. Risk takers are responsible to stakeholders in
optimizing profit management by conducting tax avoidance which has a low level
of risk detection and a low level of sanctions. Research conducted by (Pratomo en Triswidyaria 2021)
states that executive characterististics has a positive effect on tax
avoidance. Based on the foregoing, the first hypotheses in this study are:
H1 = Executive character has a
positive effect on tax avoidance.
Effect of Thin Capitalization on Tax Avoidance
(Falbo en Firmansyah 2018)
found that companies with high levels of debt have low ETRs because these
companies get a reduction in taxes owed due to interest expense. Multinational
companies get an incentive to finance their investments in other countries with
debt if the country has a higher tax rate. This statement is in line with (Dahlby 2008)
who stated that debt levels have a positive effect on tax avoidance.
Based on tax regulations,
interest expense can be a deduction from deductible income, while dividend
distribution is not a deduction from taxable income (nondeductible). When
viewed in multinational companies, companies will get incentives in the form of
tax reductions at higher rates due to interest expense. On the other hand,
interest income will be earned by groups of companies located in countries with
lower rates. The existence of information asymmetry between managers and
shareholders results in managers being able to set company capital structure
policies. Shareholders may only think that the addition of debt can add to the
source of funding, but the policy turns out to be used by managers to carry out
tax avoidance. Thus, the second hypothesis of the study is:
H2 = Thin capitalization
positively affects tax avoidance
Effect of Book Tax Gap on Tax Avoidance
Book tax gap is a book difference
between business financial statements and financial statements for taxation
caused by differences in accounting standards and tax provisions. This
difference, arises due to several reasons such as the financial and tax systems
have different users and purposes therefore the rules are also different. While
taxable income is determined by fiscal standards in which policymakers
formulate tax rules to collect income, encourage or prevent some activities,
stimulate the economy and avoid tax avoidance measures in accordance with
generally accepted accounting principles as well as strive to provide useful
information to decision makers. According to agency theory, the existence of a
book tax gap can cause conflicts of interest that arise in the relationship
between shareholders and company management. The book tax gap occurs due to
three activities, namely profit management, tax management and differences in
accounting and taxation provisions. Of the three activities, normal differences
can be used as a tool to predict the occurrence of tax avoidance. Meanwhile,
profit management and tax planning factors are more towards opportunistic
actions of the company, causing asymmetry of financial statement information.
Book tax gaps against tax avoidance can be found in various recognitions
including differences in the calculation of punyusutan or amortization of
companies, inventory valuation systems and bookkeeping using accrued stelsel or
mixed (modified) cash stelsel. Research conducted by (Hidayat en Mulda 2019)
states that the book tax gap has a significant positive effect on tax
avoidance. Based on the foregoing, then the third hypothesis is:
H3 = Book tax gap positively
affects tax avoidance
METHOD�� RESEARCH
This research was conducted
quantitatively using the Descriptive Statistics method, which is a research
method that tests the influence and analyzes whether between one variable
affects other variables. This study uses hypothesis testing to determine the
influence of independent variables, namely executive character, thin
capitalization and book tax gap on dependent variables, namely tax avoidance.
Dependent Variables
Dependent or bound variables are
variables that are the result of the influence of independent or free variables
(Payadnya and Jayantika,
2018). The dependent variable used in this study is tax avoidance. Tax
avoidance is a way to reduce taxes that are still within the limits of tax laws
and regulations, especially through tax planning. Tax avoidance was measured
using an effective tax rate (ETR) proxy modified by Yorke et al. (2016) in (Nadhifah and Arif, 2020). The
results of the ETR modification are as follows:
�
ETR =
Corporate Tax Expense −
Deferred Tax Expense
Net Profit Before Tax
Independent
Variables
Independent or free variables are
variables whose position has an influence on dependent or bound variables, can
be manipulated, changed, or replaced (Payadnya en Jayantika 2018). The independent variables used in this study were:
Executive Character
According to (Sugiyanto en Fitria 2021)
executive character is something that makes a person qualified and becomes a
permanent trait, executives have diverse qualities and styles in decision
making. The formulation of the executive character calculated using risk is as
follows:
RISK =
(Current Year Profit + Interest
Expense + Income Tax Expense)
Total Assets
Thin Capitalization
This study measures thin
capitalization using Maximum Allowable Debt (MAD) Ratio
(Richardson et al., 2015) (Falbo en Firmansyah 2018)
which is formulated as follows:
Average Debt
�
MAD Ratio =
*SHDA = (average total assets � non IBL) x 80%
average debt
S𝐻𝐷𝐴
*80% is adjusted to the debt to equity ratio limit in Indonesia according to PMK 169
/ PMK.010 / 2015 which is 4: 1.
Book Tax Gap
According to (Hidayat en Mulda 2019)
book tax difference is a book difference between business financial statements
and financial statements for taxation caused by differences in accounting
standards and tax provisions. The formulation of the tax gap book is as
follows:
(Accounting Profit − Tax Profit)
Total assets
Data
Collection Techniques
The unit of analysis refers to
the degree of unity of the data collected during the next stage of data
analysis. This study uses quantitative type data derived from secondary data
sources, namely financial statements of manufacturing companies that have gone
public and are listed on the Indonesia Stock Exchange (IDX) during 2018 � 2020
and can be accessed through the official website of the Indonesia Stock
Exchange (IDX), namely www.idx.co.id.
Research
Population and Sample
The population used in this study
is manufacturing companies listed on the Indonesia Stock Exchange (IDX) in 2018
− 2020. The determination of samples in this study is to use purposive
sampling, which is a way of sampling with predetermined criteria. The criteria
in question are:
1.Manufacturing companies listed on the Indonesia Stock Exchange (IDX) in
2018 − 2020.
2.Manufacturing companies that report their financial statements during
2018− 2020 consecutively.
3.Manufacturing companies that did not suffer losses during 2018 −
2020.
4.Manufacturing companies that use Rupiah currency during 2018 −
2020.
Analysis
Methods
This study used panel data
analysis with the Eviews tool, because the data used
in this study was panel data.� Before
conducting data testing, a descriptive statistical analysis is first carried
out to see the characteristics of the data used.� Testing of the research model was carried out
by choosing a model from three existing approach models, namely Common Effect
or Pooled Least Square (PLS), Fixed Effect Model (FEM) or Random Effect Model
(REM).� To analyze the panel data
requires a precise test of the specifications of the model to describe the
data. The tests are: Chow Test, Hausman Test, and Lagrange Multiplier Test
Hypothesis
Test and Coefficient of Determination Test (R2)
The hypothesis testing technique
used to determine whether there is a significant influence of free variables on
the value of the company with the F Statistical Test and the T Statistical Test
using a significance level of 0.05 (α = 5%). Test coefficients to measure
how much a free variable is capable of explaining bound variables. The value of
the coefficient of determination is between zero and one. A small R2 value
means that the ability of independent variables to describe the variation of
dependent variables is very limited. This study used Adjusted R2. Using the
Adjusted R2 value, it can be evaluated which regression model is the best.
Unlike R2 values, Adjusted R2 values can go up or down if one independent
variable is added to the model. In reality, the Adjusted R2 value can be
negative although the desired one must be positive. If in the empirical test a
negative Adjusted R2 value is obtained, then the Adjusted R2 value is
considered to be zero.
Multiple
Regression Analysis
Multiple regression analysis in
this study was used to determine the influence of executive character, thin
capitalization and book tax gap on tax avoidance in manufacturing companies
listed on the Indonesia Stock Exchange (IDX). The formulation of the multiple
regression equation is as follows:
TAit= a + b1 KE it + b2 TCAP it + b3 BTG it + Ɛ
Information:
TA= Cummulative Abnormal Return
of the company i year t
a= Konstanta������������������
b= Koefisien Regresi������������������
KE= Executive Character of the
company i t-th year TCAP= Thin Capitalization of the company i t-th year BTG=
Book Tax Gap of the company i year t
ɛ= Random error component
(random err����������������������
RESULT AND DISCUSSION
Data Description
This research was used to test the presence or absence of
the Influence of Executive Character, Thin Capitalization, Book Tax Gap and Tax
avoidance on manufacturing companies listed on the Indonesia Stock Exchange
(IDX) for the 2018-2020 period. Based on the data obtained and company
criteria, there were 19 companies that met the criteria and were sampled in the
study with a total of 57 observations of financial statements, shown in the
following table
Manufacturing
Companies listed on the IDX 2018-2020 -
Basic Industry and
Chemical (81) -
Consumer Good
Industry (61) Miscellaneous Industry (51) |
193 |
Reduced : The company is in the development category |
(86) |
Reduced : The Company does not publish an Annual Report |
(18) |
Reduced : Financial statements are not presented in Rupiah |
(22) |
Reduced : The company suffered a loss |
(48) |
Number of companies entering the research sample |
19 |
Years of Observation |
3 |
Number of Observation Samples |
57 |
Source : Processed by the Author (2022)
Descriptive Statistical Analysis
Descriptive statistical analysis is the analysis of data
in the form of collecting, presenting, processing, and summarizing data that
does not provide conclusions.
Table 2
Descriptive Statistics
|
HE |
WED |
TCAP |
BTG |
Mean |
0.207632 |
0.610146 |
0.954788 |
0.142573 |
Maximum |
0.357510 |
4.990970 |
5.761040 |
1.270140 |
Minimum |
-0.075340 |
0.038900 |
0.099850 |
-0.035080 |
Std. Dev. |
0.097228 |
0.938361 |
1.136013 |
0.228891 |
Based on the results of a descriptive statistical test
with 57 observations, the average value tax avoidance variable of 0.207632
explains that companies that have a difference between company tax expense and
deferred tax expense are not material with the company's earnings before
tax.� Variables Executive character is
something that qualifies a person and becomes a fixed trait, the executive has
diverse qualities and styles in decision making. The mean value of 0.610146
indicates that on average the sample company has executives who do not like
risk, so in business decision making these executives will prefer to take
smaller risk decisions and for a standard deviation of 0.938361.� The thin capitalization / TC variable
measured using the ratio between average debt and safe harbor debt amount
(SHDA), the average value of .954788 explains that most companies are indicated
to be practicing thin capitalization.�
The book tax gap variable is the book difference between business
financial statements and financial statements for Taxation, on average sample
companies do not have so much book difference between business financial
statements and financial statements for Taxation.
Test Panel Effects
Panel data regression has a combination of
characteristics, namely that the data owned consists of several objects and
covers some time. This kind of data has the main advantage, which is that it is
robust against several types of violations, such as heterokedasticity and
normality. Panel data regression can be done with three models, namely pooled /
common effect, fixed effect, and random effect with their respective advantages
and disadvantages. The selection of the model depends on the assumptions used
by the researcher and the fulfillment of the requirements for processing the
correct statistical data so that it can be statistically accounted for.
The main goal in the panel effects test is to choose a
model from all three available models. The first step, compare the results of
the common effect and fixed effect models using the chow test. The test is
needed to choose the most appropriate model between the common effect and fixed
effect models. The results of the chow test can be seen in table 3
Table 3
Chow Test
Effects
Test |
Prob. |
Conclusion |
Cross-section
Chi-square |
0.0000 |
Ha accepted |
Source : Data processed Eviews 9 (2022)
Ho: common effect
Ha: fixed effect
The results of the chow test in table 4.4 show that the
probability value of cross section chi square is 0.0000 < 0.05 (alpha 5%),
then Ha is accepted. Based on the results of the chow test, a fixed effect was
selected so that it showed that there were differences in characteristics both
in
individual as well as between periods. Furthermore, a
Hausman test was carried out to test whether it was better estimated using a
fixed effect model or a random effect model. Hausman test results can be seen
in table 4
Table 4
Uji Hausman
Test
Summary |
Prob. |
Conclusion |
Cross-section
Random |
0.2068 |
Ho accepted |
The results of the hausman test in table 4.5 show that
the probability value of cross section random is 0.2068 > 0.05 (alpha 5%),
then Ho is accepted. Therefore, it can be concluded that the best model chosen
is random effect.
Table 5
Test Lagrange Multiplier
Test Summary |
Prob. |
Conclusion |
Breusch-Pagan |
0.0001 |
Ha accepted |
Ho: common effect
Ha: random effect
The results of the lagrange multiplier test in table 4.6
show that the Breusch-Pagan probability value is 0.0001 < 0.05 (alpha 5%),
hence Ha is accepted. Therefore, it can be concluded that the best model chosen
is random effect.
Hypothesis Testing
After conducting a panel effect test and testing that the
overall data is suitable for use in the study, the research can proceed to the
hypothesis testing stage. Hypothesis testing consists of the interpretation of
the regression model and the testing of the regression coefficient. The analysis
is intended to look at the influence of independent variables on dependent
variables. This is a one-sided or one-tailed test.
Table 6
Hypothesis Test
Variable |
Coefficient |
Prob. |
Conclusion |
C |
0.197316 |
0.0000 |
|
WED |
0.104161 |
0.0001 |
H1 accepted |
TCAP |
0.011335 |
0.0585 |
H2 accepted |
BTG |
-0.297503 |
0.0024 |
H3 is deprecated |
Goodness of Fit Test |
|||
Adj R2 |
0.175383 |
||
Prob F-statistic |
0.004109 |
Source : Data processed Eviews 9 (2022)
Based on table 4.6, the regression model obtained is:
TAit = 0.197316 + 0.104161 KEit + 0.011335 TCAPit -
0.297503 BTGit + e
The regression coefficient testing based on table 4.6 is
as follows:
Coefficient of Determination (Adjusted R-Square)
Based on table 4.6, the Adjusted R-Square (R2) value is 0.175383.
This shows that the ability of independent variables to explain the behavior of
dependent variables is 17.54%. It can also be interpreted that there are other
independent variables besides executive character, thin capitalization and book
tax gap that are able to explain tax avoidance behavior in the company of
82.46%.
Test F
Test F results are reflected in table 4.6 at the Prob
(F-statistic) value of 0.004109. This shows that there is at least 1 (one)
independent variable that affects the dependent variable, and means that the
research model is feasible to use.
t-test
The results of the t Test reflected in table 4.6
partially interpret the influence of independent variables on the dependent
variables as follows :
Hypothesis 1: Executive Character Positively Affects Tax
Avoidance
Based on the test results, it is known that the
coefficient of the executive character variable is 0.104161. That is, if the
executive character increases by 1 unit, then tax avoidance on average will
increase by 0.104161 units. Then, the probabilita value or significance is
known to be 0.0001 : 2 i.e. 0.00005 < 0.05 (alpha
5%), Ha is accepted. Statistically, it can be concluded that at a 95%
confidence level there is a positive influence of executive character on tax
avoidance so that H1 is accepted.
Hypothesis 2: Thin Capitalization Positively Affects Tax
Avoidance
Based on the test results, it is known that the
coefficient of the thin capitalization variable is 0.011335. This means that if
thin capitalization increases by 1 unit, then tax avoidance will increase by an
average of 0.011335 units. Then, the probabilita value or significance is known
to be 0.0585: 2 i.e. 0.02925 < 0.05 (alpha 5%).
Statistically, it can be concluded that at a 95% confidence level there is a positive
influence of thin capitalization on tax avoidance so that H2 is accepted.
Hypothesis 3: Book Tax Gap Positively Affects Tax
Avoidance
Based on the test results, it is known that the
coefficient of the book tax gap variable is -0.297503. This means that if the
book tax gap increases by 1 unit, then the average tax avoidance will decrease
by 0.297503 units. Then, the probabilita value or significance is known to be
0.0024: 2 i.e. 0.0012 < 0.05 (alpha 5%).
Statistically, it can be concluded that at a 95% confidence level there is a
negative influence of the book tax gap on tax avoidance so that H3 is rejected.
Discussion of Research Results
The panel data regression analysis that has been carried
out aims to determine the relationship that can be measured from the character
of the executive, thin capitalization and book tax gap to tax avoidance. The
following is a summary of the results of research that has been carried out.
The Positive Influence of Executive Character on Tax
Avoidance
Executive character has a positive effect on tax
avoidance. So that H1 in this study is accepted. Based on the results of
partial tests, research shows that the influence of executive character on tax
avoidance is positive, which means that the higher the executive character in
the company, the action for tax avoidance will increase, and vice versa. An
executive is an individual who occupies an important position in a position in
the leadership system in a company and or an organization. The size of the
company's risk indicates a tendency to executive character. The greater the
risk-taking of the company, the higher the tax avoidance that can be carried
out by the company's managers. This research is contrary to agency theory which
states that differences in interests can be a factor in the occurrence of
deviations in executive behavior. The results showed that company executives
will prefer to carry out tax avoidance of all kinds of opportunities that have
the potential to cause risks, thereby increasing the company's tax avoidance
actions. The results of this study are in line with research conducted by
Pratomo & Triswidyaria (2021) stated that executive characterististics has
a positive effect on tax avoidance.
Positive Effect of Thin Capitalization on Tax Avoidance
Thin capitalization is the second most popular strategy
in tax avoidance (www.news.ddtc.co.id) practice. Thin capitalization is defined
as a company's financing strategy by prioritizing debt instruments over equity
or capital (Falbo and Firmansyah, 2018). Debt referred to in the practice of
thin capitalization refers more to debt to creditors who have a special
relationship (related party) with the company (Widodo, et al. 2020). Debt
itself was chosen because of its ability to increase company value through tax
incentives in the form of loan interest expenses (Salwah and Herianti, 2019).
The results of the study prove that thin capitalization
has a positive effect on tax avoidance. These results are in line with the
research of Falbo and Firmansyah (2018) which proves that the practice of thin
capitalization has a positive influence on tax avoidance. That is, the higher
the value of thin capitalization, the higher the tendency of companies to use
debt as the largest composition in its financing. The results of this study are
strengthened by research conducted by Olivia and Dwimulyani (2019) which also
proves that thin capitalization has a positive effect on tax avoidance
The Positive Effect of Book Tax Gap on Tax Avoidance
Book tax gap negatively affects tax avoidance. So the H3 in this study was rejected. Based on the results
of the partial test, the research shows that the effect of the book tax gap on
tax avoidance is a negative effect, which means that the larger the book tax
gap in the company, the no indication of an increase in tax avoidance. Book tax
gap is a book difference between business financial statements and financial
statements for taxation caused by differences in accounting standards and tax
provisions. Different bases in the preparation of these financial statements
can cause differences in the calculation of the company's profit and loss. This
result is not in accordance with agency theory, with the existence of a book
tax gap can cause conflicts of interest that arise in the relationship between
shareholders and company management, so as to increase the company's tax
avoidance actions. This is because the high book tax gap can be caused by
significant differences between the accounting system applied and the
applicable tax regulations to meet the interests of investors in terms of the
returns provided. The results of this study are not in line with research
conducted by Hidayat and Mulda (2019) stating that the book tax gap has a
significant positive effect on tax avoidance.
CONCLUSION
Based on the results
of the research and discussion in the previous chapter, several conclusions can
be drawn from this study, namely: Executive character has a positive influence
on tax avoidance. This means that it can be said that H1 in this study is
accepted. Thin capitalization has a positive influence on tax avoidance. This
means that it can be said that H2 in this study is accepted.� Book tax gap has a negative influence on tax
avoidance. This means that it can be said that H3 in this study was rejected.
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Copyright holders:
Lestari, R. Rosiyana Dewi, Ika Wahyuni, Ika
Wahyuni,Windiyani (2023)
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