Income Tax Cut and Firm Tax Avoidance
Abstract
This study aims to examine the impact of Indonesian corporate income tax rate reduction on public companies’ tax avoidance. This study utilizes a quasi-experimental design with the difference-in-differences (DID) method to isolate the effect of corporate income tax rates changes on corporate tax avoidance behavior. Firms’ ownership structure is used to separate firms that are more likely to be affected by the tax law changes, thus representing the treatment group in the DID setting. Utilizing a sample of public companies listed on the Indonesia Stock Exchange in the 2019 and 2020 periods, this study finds that in the year preceding the tax rate reduction, firms with greater institutional ownership exercise higher tax avoidance compared to other firms. The differences, however, are not statistically significant, which may be caused by the short timespan between the policy announcement and tax filing period, limiting the time available for firms to adjust their tax avoidance behavior.
Keywords: Tax Cut, Tax Avoidance, Institutional Investor
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References
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Dalamagas, B. (2011). A Dynamic Approach to Tax Evasion. Public Finance Review, 39(2), 309–326. https://doi.org/10.1177/1091142110386213
De Massis, A., Frattini, F., Majocchi, A., & Piscitello, L. (2018). Family firms in the global economy: Toward a deeper understanding of internationalization determinants, processes, and outcomes. Global Strategy Journal, 8(1), 3–21.
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Henry, E., & Sansing, R. (2020). CORPORATE TAX PREFERENCES BEFORE AND AFTER THE TAX CUTS AND JOBS ACT OF 2017. National Tax Journal, 73(4), 1065–1086. https://doi.org/10.17310/ntj.2020.4.07
Huesecken, B., Overesch, M., & Tassius, A. (2018). Effects of disclosing tax avoidance: Capital market reaction to LuxLeaks. Available at SSRN 2848757.
Jiang, Y., Zheng, H., & Wang, R. (2021). The effect of institutional ownership on listed companies’ tax avoidance strategies. Applied Economics, 53(8), 880–896. https://doi.org/10.1080/00036846.2020.1817308
Khan, M., Srinivasan, S., & Tan, L. (2017). Institutional ownership and corporate tax avoidance: new evidence. The Accounting Review, 92(2), 101. https://go.exlibris.link/02zj56JZ
Kim, J., McGuire, S. T., Savoy, S., Wilson, R., & Caskey, J. (2019). How quickly do firms adjust to optimal levels of tax avoidance? Contemporary Accounting Research, 36(3), 1824–1860.
Kurniawati, M., & Toly, A. A. (2014). Analisis keadilan pajak, biaya kepatuhan, dan tarif pajak terhadap persepsi wajib pajak mengenai penggelapan pajak di Surabaya Barat. Tax & Accounting Review, 4(2).
Le, B., & Moore, P. H. (2022). The effects of state ownership and tax rate cuts on accounting conservatism: evidence from Vietnam. Pacific Accounting Review, 34(2), 197–224. https://doi.org/10.1108/PAR-12-2020-0209
Lin, K. Z., Mills, L. F., & Zhang, F. (2014). Public versus Private Firm Responses to the Tax Rate Reduction in China. The Journal of the American Taxation Association, 36(1), 137–163. https://doi.org/10.2308/atax-50618
Mukherjee, S. P., Sinha, B. K., & Chattopadhyay, A. K. (2018). Statistical methods in social science research. Springer.
Paulus, A., & Peichl, A. (2009). Effects of flat tax reforms in Western Europe. Journal of Policy Modeling, 31(5), 620–636. https://doi.org/10.1016/j.jpolmod.2009.06.001
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Rebecca, Y., & Siregar, S. V. (2012). Pengaruh corporate governance index, kepemilikan keluarga, dan kepemilikan institusional terhadap biaya ekuitas dan biaya utang: studi empiris pada perusahaan manufaktur yang terdaftar di BEI. Simposium Nasional Akuntansi XV, 1–28.
Republik Indonesia. (2008). Undang-Undang Nomor 36 Tahun 2008 tentang Pajak Penghasilan. Republik Indonesia.
Republik Indonesia. (2020). Peraturan Pemerintah Pengganti Undang-Undang Nomor 1 Tahun 2020 tentang Kebijakan Keuangan Negara dan Stabilitas Sistem Keuangan Untuk Penanganan Pandemi Corona Virus Disease (Covid-19) dan/atau Dalam Rangka Menghadapi Ancaman yang Membahayakan Perekonomi. Republik Indonesia.
Republik Indonesia. (2021). Undang-Undang Nomor 7 Tahun 2021 Tentang Harmonisasi Peraturan Perpajakan.
Salam, N. F., & Rahim, S. (2016). Pengaruh Ketentuan Tarif Pajak Badan, Ketepatan Pemanfaatan Pajak dan Sanksi Pajak Terhadap Penggelapan Pajak. Assets: Jurnal Ekonomi, Manajemen Dan Akuntansi, 6(1), 126–137.
Sandmo, A. (2005). The Theory of Tax Evasion: A Retrospective View. National Tax Journal, 58(4), 643–663. https://doi.org/10.17310/ntj.2005.4.02
Septina Muslimah. (2020). Tarif Pajak Penghasilan Badan Turun 22 Persen. https://klikpajak.id/blog/tarif-pajak-penghasilan-badan-turun-22-persen/
Shapiro, S. P. (2005). Agency Theory. Annual Review of Sociology, 31(1), 263–284. https://doi.org/10.1146/annurev.soc.31.041304.122159
Song, M., Wang, S., & Zhang, H. (2020). Could environmental regulation and R&D tax incentives affect green product innovation? Journal of Cleaner Production, 258, 120849. https://doi.org/10.1016/j.jclepro.2020.120849
St. Clair, T., & Cook, T. D. (2015). DIFFERENCE-IN-DIFFERENCES METHODS IN PUBLIC FINANCE. National Tax Journal, 68(2), 319–338. https://doi.org/10.17310/ntj.2015.2.04
Sutton, C., Veliyath, R., Pieper, T. M., Hair, J. F., & Caylor, M. (2018). Secondary agency conflicts: A synthesis and proposed measurement model. Long Range Planning, 51(5), 720–735. https://doi.org/10.1016/j.lrp.2017.12.004
Wang, F., Xu, S., Sun, J., & Cullinan, C. P. (2020). Corporate tax avoidance: A literature review and research agenda. Journal of Economic Surveys, 34(4), 793–811.
Wilde, J. H., & Wilson, R. J. (2018). Perspectives on corporate tax planning: Observations from the past decade. The Journal of the American Taxation Association, 40(2), 63–81.
Yaniv, G. (2013). Tax Evasion, Conspicuous Consumption, and the Income Tax Rate. Public Finance Review, 41(3), 302–316. https://doi.org/10.1177/1091142112465544
Andries, K., Cools, M., & Van Uytbergen, S. (2017). To Shift or Not To Shift? Intertemporal Income Shifting as a Response to the Risk Capital Allowance Introduction in Belgium. The European Accounting Review, 26(3), 531–559. https://doi.org/10.1080/09638180.2016.1202854
Ardyaksa, T. K., & Kiswanto, K. (2014). Pengaruh keadilan, tarif pajak, ketepatan pengalokasian, kecurangan, teknologi dan informasi perpajakan terhadap tax evasion. Accounting Analysis Journal, 3(4).
Arieftiara, D., Utama, S., Wardhani, R., & Rahayu, N. (2020). Contingent fit between business strategies and environmental uncertainty: The impact on corporate tax avoidance in Indonesia. Meditari Accountancy Research, 28(1), 139–167. https://doi.org/10.1108/MEDAR-05-2018-0338
Armstrong, C. S., Blouin, J. L., Jagolinzer, A. D., & Larcker, D. F. (2015). Corporate governance, incentives, and tax avoidance. Journal of Accounting & Economics, 60(1), 1–17. https://doi.org/10.1016/j.jacceco.2015.02.003
Asiri, M., Al-Hadi, A., Taylor, G., & Duong, L. (2020). Is corporate tax avoidance associated with investment efficiency? The North American Journal of Economics and Finance, 52, 101143. https://doi.org/10.1016/j.najef.2020.101143
Asmara, C. G. (2019). Jokowi, Sri Mulyani, dan PPh Badan yang Turun Jadi 20%. Www.Cnbcindonesia.Com. https://www.cnbcindonesia.com/news/20190620094120-4-79471/jokowi-sri-mulyani-dan-pph-badan-yang-turun-jadi-20
Claessens, S., Djankov, S., & Lang, L. H. P. (2000). The separation of ownership and control in East Asian corporations. Journal of Financial Economics, 58(1–2), 81–112.
Dalamagas, B. (2011). A Dynamic Approach to Tax Evasion. Public Finance Review, 39(2), 309–326. https://doi.org/10.1177/1091142110386213
De Massis, A., Frattini, F., Majocchi, A., & Piscitello, L. (2018). Family firms in the global economy: Toward a deeper understanding of internationalization determinants, processes, and outcomes. Global Strategy Journal, 8(1), 3–21.
De Mooij, R. A., & Saito, I. (2014). Japan’s corporate income tax: Facts, issues and reform options. International Monetary Fund.
Dewan Perwakilan Rakyat RI. (2021). Budge Issue Brief Ekonomi & Keuangan. https://berkas.dpr.go.id/puskajianggaran/bib/public-file/bib-public-79.pdf
Dobbins, L., & Jacob, M. (2016). Do corporate tax cuts increase investments? Accounting and Business Research, 46(7), 731–759. https://doi.org/10.1080/00014788.2016.1192985
Frensidy, B. (2021). Investor Institusi vs Investor Individu. https://insight.kontan.co.id/news/investor-institusi-vs-investor-individu-1
Gahramanov, E. (2009). The Theoretical Analysis of Income Tax Evasion Revisited. Economic Issues (Stoke-on-Trent, England), 14(1), 35–42. https://go.exlibris.link/8K50T0L6
Hanlon, M., & Heitzman, S. (2010). A review of tax research. Journal of Accounting and Economics, 50(2–3), 127–178.
Henry, E., & Sansing, R. (2020). CORPORATE TAX PREFERENCES BEFORE AND AFTER THE TAX CUTS AND JOBS ACT OF 2017. National Tax Journal, 73(4), 1065–1086. https://doi.org/10.17310/ntj.2020.4.07
Huesecken, B., Overesch, M., & Tassius, A. (2018). Effects of disclosing tax avoidance: Capital market reaction to LuxLeaks. Available at SSRN 2848757.
Jiang, Y., Zheng, H., & Wang, R. (2021). The effect of institutional ownership on listed companies’ tax avoidance strategies. Applied Economics, 53(8), 880–896. https://doi.org/10.1080/00036846.2020.1817308
Khan, M., Srinivasan, S., & Tan, L. (2017). Institutional ownership and corporate tax avoidance: new evidence. The Accounting Review, 92(2), 101. https://go.exlibris.link/02zj56JZ
Kim, J., McGuire, S. T., Savoy, S., Wilson, R., & Caskey, J. (2019). How quickly do firms adjust to optimal levels of tax avoidance? Contemporary Accounting Research, 36(3), 1824–1860.
Kurniawati, M., & Toly, A. A. (2014). Analisis keadilan pajak, biaya kepatuhan, dan tarif pajak terhadap persepsi wajib pajak mengenai penggelapan pajak di Surabaya Barat. Tax & Accounting Review, 4(2).
Le, B., & Moore, P. H. (2022). The effects of state ownership and tax rate cuts on accounting conservatism: evidence from Vietnam. Pacific Accounting Review, 34(2), 197–224. https://doi.org/10.1108/PAR-12-2020-0209
Lin, K. Z., Mills, L. F., & Zhang, F. (2014). Public versus Private Firm Responses to the Tax Rate Reduction in China. The Journal of the American Taxation Association, 36(1), 137–163. https://doi.org/10.2308/atax-50618
Mukherjee, S. P., Sinha, B. K., & Chattopadhyay, A. K. (2018). Statistical methods in social science research. Springer.
Paulus, A., & Peichl, A. (2009). Effects of flat tax reforms in Western Europe. Journal of Policy Modeling, 31(5), 620–636. https://doi.org/10.1016/j.jpolmod.2009.06.001
Permatasari, I., & Laksito, H. (2013). Minimalisasi Tax Evasion Melalui Tarif Pajak, Teknologi dan Informasi Perpajakan, Keadilan Sistem Perpajakan, dan Ketepatan Pengalokasian Pengeluaran Pemerintah (Studi Empiris pada Wajib Pajak Orang Pribadi di Wilayah KPP Pratama Pekanbaru Senapelan). Diponegoro Journal of Accounting, 455–464.
Putra, B. C., & Qibthiyyah, R. M. (2019). Pengaruh Penerapan Tarif Tunggal Pajak Penghasilan Badan terhadap Indikasi Penggelapan Pajak. Jurnal Ekonomi Dan Pembangunan Indonesia, 19(1), 96–117.
Rebecca, Y., & Siregar, S. V. (2012). Pengaruh corporate governance index, kepemilikan keluarga, dan kepemilikan institusional terhadap biaya ekuitas dan biaya utang: studi empiris pada perusahaan manufaktur yang terdaftar di BEI. Simposium Nasional Akuntansi XV, 1–28.
Republik Indonesia. (2008). Undang-Undang Nomor 36 Tahun 2008 tentang Pajak Penghasilan. Republik Indonesia.
Republik Indonesia. (2020). Peraturan Pemerintah Pengganti Undang-Undang Nomor 1 Tahun 2020 tentang Kebijakan Keuangan Negara dan Stabilitas Sistem Keuangan Untuk Penanganan Pandemi Corona Virus Disease (Covid-19) dan/atau Dalam Rangka Menghadapi Ancaman yang Membahayakan Perekonomi. Republik Indonesia.
Republik Indonesia. (2021). Undang-Undang Nomor 7 Tahun 2021 Tentang Harmonisasi Peraturan Perpajakan.
Salam, N. F., & Rahim, S. (2016). Pengaruh Ketentuan Tarif Pajak Badan, Ketepatan Pemanfaatan Pajak dan Sanksi Pajak Terhadap Penggelapan Pajak. Assets: Jurnal Ekonomi, Manajemen Dan Akuntansi, 6(1), 126–137.
Sandmo, A. (2005). The Theory of Tax Evasion: A Retrospective View. National Tax Journal, 58(4), 643–663. https://doi.org/10.17310/ntj.2005.4.02
Septina Muslimah. (2020). Tarif Pajak Penghasilan Badan Turun 22 Persen. https://klikpajak.id/blog/tarif-pajak-penghasilan-badan-turun-22-persen/
Shapiro, S. P. (2005). Agency Theory. Annual Review of Sociology, 31(1), 263–284. https://doi.org/10.1146/annurev.soc.31.041304.122159
Song, M., Wang, S., & Zhang, H. (2020). Could environmental regulation and R&D tax incentives affect green product innovation? Journal of Cleaner Production, 258, 120849. https://doi.org/10.1016/j.jclepro.2020.120849
St. Clair, T., & Cook, T. D. (2015). DIFFERENCE-IN-DIFFERENCES METHODS IN PUBLIC FINANCE. National Tax Journal, 68(2), 319–338. https://doi.org/10.17310/ntj.2015.2.04
Sutton, C., Veliyath, R., Pieper, T. M., Hair, J. F., & Caylor, M. (2018). Secondary agency conflicts: A synthesis and proposed measurement model. Long Range Planning, 51(5), 720–735. https://doi.org/10.1016/j.lrp.2017.12.004
Wang, F., Xu, S., Sun, J., & Cullinan, C. P. (2020). Corporate tax avoidance: A literature review and research agenda. Journal of Economic Surveys, 34(4), 793–811.
Wilde, J. H., & Wilson, R. J. (2018). Perspectives on corporate tax planning: Observations from the past decade. The Journal of the American Taxation Association, 40(2), 63–81.
Yaniv, G. (2013). Tax Evasion, Conspicuous Consumption, and the Income Tax Rate. Public Finance Review, 41(3), 302–316. https://doi.org/10.1177/1091142112465544
Published
2023-09-30
How to Cite
SAPUTRA, Ruri; YULIANTI, Yulianti.
Income Tax Cut and Firm Tax Avoidance.
E-Jurnal Akuntansi, [S.l.], v. 33, n. 9, p. 2407-2420, sep. 2023.
ISSN 2302-8556.
Available at: <https://ojs.unud.ac.id/index.php/akuntansi/article/view/101386>. Date accessed: 21 nov. 2024.
doi: https://doi.org/10.24843/EJA.2023.v33.i09.p12.
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