Board Political Connection and Tax Avoidance: Ownership Structure as A Moderating Variable

Ni Wayan Rustiarini,I Made Sudiartana

doi:10.24815/jdab.v8i2.20760

Ni Wayan Rustiarini, I Made Sudiartana

Open Access

https://doi.org/10.24815/jdab.v8i2.20760

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Abstract

This study aims to examine the relationship between political connection and tax avoidance and the role of ownership structure as a moderating variable. Corporate tax avoidance is calculated using effective tax rate (ETR). The research population is manufacturing companies listed on the Indonesian Stock Exchange from 2017 to 2019. Using purposive method this study gathered data from 119 companies or 357 company-year observations. This study revealed that political connection has a negative effect on ETR. This finding indicates that the political connections may lead to nepotism practices with aim to reduce the corporate tax burden. The managerial ownership strengthens the negative relationship between political connection and ETR. However, institutional ownership weakens the negative relationship between political connection and ETR. Contrary to these two results, public ownership cannot moderate the political connection and ETR.

Highlights

The tax avoidance phenomenon is an issue that is widely discussed in various countries
Tax avoidance practice is a complex phenomenon because it involves corporate boards and shareholders
This study aims to identify ownership structures' role, namely managerial, institutional, and public ownership, as moderating variables in the relationship between board political connection and tax avoidance

Summary

Introduction

The tax avoidance phenomenon is an issue that is widely discussed in various countries. In Indonesia, one of the multinational cigarette companies is suspect’d of tax evasion through PT. Tax avoidance practice leads to fraud (corruption) that involves tax officials' bribery (CNN Indonesia.com, 2016). Tax avoidance practices focus on academics (Huseynov et al, 2017; Mahaputra et al, 2018) and invite public and mass media attention (Kanagaretnam et al, 2016). Based on this phenomenon, empirical studies on tax avoidance need to be explored

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Discussion

Conclusion