Majority Shareholder on the Composition of Public Ownership and Tax Avoidance Practices in Public Companies

Abstract

This study attempts to analyze the effectiveness of the enforcement of regulations on public share ownership. Specifically, this study analyzes whether there are differences in the composition of public ownership between before and after the regulation was enacted. By using independent t-test, carried out on the Indonesia Stock Exchange during 2008-2011 with a total of 320 observations (company-years), regarding the effectiveness of regulations regarding the provision of tax incentives associated with the proportion of public share ownership, the difference is analyzed with the deadline for the enactment of government regulations on reduction of income tax rates for public entity taxpayers in the form of public company and the Minister of Finance Regulation regarding the procedure for implementing and monitoring the decreasing of granting tariffs for domestic corporate taxpayers in the form of public companies. The results indicate that the regulations were not proven to empirically have significant effect in increasing the proportion of public share ownership in the capital market, and are more likely to lead to trade-offs with government efforts to increase tax revenues and reduce the practice of tax avoidance by companies. Therefore, it is necessary to review the tax incentive scheme that can be given to companies going public in order to be effective in increasing public share ownership in Indonesia and not trade-off with the practice of corporate tax avoidance.