Does capital intensity, inventory intensity, firm size, firm risk, and political connections affect tax aggressiveness?

Sugeng Sugeng,Badrus Zaman,Eko Prasetyo

doi:10.31106/jema.v17i1.3609

Abstract

Tax aggressiveness is one of a critical issue in the world of taxation. Many companies do tax planning to minimize their tax abilities. This study aims to examine how capital intensity, inventory intensity, firm size, firm risk, and political connections, relate to the tax aggressiveness of manufacturing listed companies in Indonesia, an emerging economy of Southeast Asia. This study combined the tax aggressiveness factor from different perspectives into one model. This study used purposive sampling with manufacturing companies listed in Indonesia Stock Exchange during 2015-2017 and experienced a consecutive profit as the main criteria. Panel data regression used as a data analysis technique. The result shows that there is a significant effect between capital intensity, political connection, and tax aggressiveness. The relationship between inventory intensity, firm size, firm risk, and tax aggressiveness failed to prove in this study. This result is consistent across several measures of tax aggressiveness.

Highlights

Tax is one of the important sources for the country to finance their expenditures
Our study has provided empirical evidence on tax aggressiveness behavior in Indonesia
We have managed to expose the effect of capital intensity, inventory intensity, firm size, firm risk, and political connections on tax aggressiveness

Summary

Introduction

Tax is one of the important sources for the country to finance their expenditures (both for expenditure routine and development expenditure). Carolina et al (2014) argued that for companies, tax is a burden that can reduce the company’s net income. Companies tend to be aggressive in taxation and looking for ways to reduce their burden through various tax planning treatment both legally (tax avoidance) or even illegal. Dunbar et al (2010) argue that capital intensity (company investment in fixed asset) correlates with overall tax planning opportunities. Richardson et al (2016) added that capital intensity is positively associated with tax aggressiveness due to the accelerated depreciation charges based on a fixed asset. Inventory-intensive firms should be negatively associated with tax aggressiveness which means the larger the inventory level of companies, the smaller the tax avoidance intention (Stickney & McGee, 1982)

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Discussion

Conclusion