Exploring the intricacies of tax planning: a novel insight from the Indonesian context

Abstract

This study ventures into the underexplored realm of tax planning in Indonesia, a domain where extensive research is still in its nascent stage but critically vital. Amidst the Indonesian government’s reliance on taxation for fostering inclusivity, this research delves into the impact of ownership structures and earnings management on tax avoidance practices. By collecting and analyzing data from 90 companies listed on the Indonesia Stock Exchange from 2017 to 2020, encompassing 344 firm-years, this study employs multiple linear regression to dissect the complexities involved. The findings reveal that insider ownership and earnings management negatively influence tax avoidance, whereas institutional and blockholder ownership exhibit a positive impact. These insights offer a fresh perspective on how incentives for tax evasion vary across different ownership structures and management levels, highlighting how opportunistic behavior in earnings management can indicate a propensity toward tax avoidance.

IMPACT STATEMENT

Our research investigates the intriguing connection between different types of company ownership and tax avoidance strategies among manufacturing companies listed on the Indonesia Stock Exchange from 2017 to 2020. This study is particularly relevant to the general public as it sheds light on how companies manage their finances and taxes, impacting Indonesia’s economy and, consequently, its citizens. We explore how insider, institutional, and blockholder ownerships influence companies’ approaches to tax avoidance, providing insights that are crucial for understanding corporate financial behavior. These findings are significant for anyone interested in corporate governance, ethical business practices, and the economic health of the nation. By bringing these issues to the forefront, our research aims to foster greater transparency and accountability in the corporate sector, contributing to a more informed public discourse on financial and tax-related matters.

Keywords:

• Institutional ownership
• insider ownership
• blockholder ownership
• effective tax rate
• discretionary accrual

REVIEWING EDITOR:

• Collins Ntim, University of Southampton, United Kingdom of Great Britain and Northern Ireland

SUBJECTS:

• Business, Management and Accounting
• Accounting
• Corporate Governance
• Corporate Social Responsibility & Business Ethics

Acknowledgements

We express our heartfelt gratitude to those who contributed to our study on ownership structures and tax avoidance in Indonesian manufacturing firms (2017-2020). We appreciate the Indonesian Capital Market Directory (ICMD) and the Jakarta Stock Exchange for providing crucial financial data. Our team’s dedication and expertise were invaluable in conducting this comprehensive analysis. We also thank our academic mentors and peer reviewers for their insightful feedback and guidance. Finally, our families and friends deserve acknowledgment for their unwavering support and encouragement. This research reflects the collaborative efforts of many, and we are deeply thankful for their contributions.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Nature of the data

The data used in this research are primarily quantitative in nature, derived from the financial statements of manufacturing companies. The data include financial figures such as revenue, expenses, profits, and other relevant financial metrics.

Source of the data

The data were sourced from two main sources: the Indonesian Stock Exchange (IDX) and the Indonesian Capital Market Directory (ICMD). These sources provide access to audited financial statements of publicly listed companies, which are required to disclose their financial information to the public.

Size of the data

The dataset comprises financial information from manufacturing companies listed on the IDX from the years 2017 to 2020. The exact size of the dataset in terms of the number of companies and the number of financial statements analyzed is detailed in the research article.

Accessibility of the data

Due to the proprietary nature of the data, it cannot be made openly accessible. However, researchers interested in accessing the data for academic or research purposes may submit a formal request to the corresponding author, Prof. Dr. Istianingsih Sastrodiharjo, at [email protected]. Requests will be considered in accordance with the data sharing policies of the Indonesian Stock Exchange and the Indonesian Capital Market Directory, and subject to necessary approvals and confidentiality agreements.

Details of rights and permissions required

Access to the data requires permission from the Indonesian Stock Exchange and the Indonesian Capital Market Directory, as the data are proprietary and subject to confidentiality agreements. Researchers interested in accessing the data must adhere to the data sharing policies of these organizations and obtain necessary approvals before accessing the data.

Data availability statement

The data supporting the findings of this research are available within the article. The data were sourced from the Indonesian Stock Exchange (IDX) and the Indonesian Capital Market Directory (ICMD), focusing on audited financial statements of manufacturing companies listed on the IDX from the years 2017 to 2020.

Additional information

Notes on contributors

Istianingsih Sastrodiharjo

Istianingsih Sastrodiharjoa (Lead Researcher): A distinguished Professor of Contemporary Accounting at Universitas Bhayangkara Jakarta Raya, Prof. Istianingsih is the principal investigator in this research. She brings an illustrious academic and professional background to the study, holding a Doctorate in Accounting Sciences with Cum Laude honors from Universitas Indonesia and having completed postdoctoral studies at the School of Governance, Murdoch University, Australia. Prof. Istianingsih’s expertise in contemporary accounting practices and her profound understanding of corporate finance and taxation are pivotal to the study’s focus on ownership structures and tax avoidance strategies in Indonesian manufacturing firms. Her role encompasses overseeing the research design, methodology, and analysis, ensuring the study’s academic rigor and relevance to both the academic community and industry practitioners.

Aloysius Harry Mukti

Aloysius Harry Mukti, Ph.D (Co-Researcher): As a co-researcher, Mr. Mukti contributed significantly to the data collection and analysis phases of the study. His analytical skills and knowledge in finance and economics were crucial in examining the ownership structures and tax avoidance strategies of Indonesian manufacturing firms. His role also included assisting in the preparation of the final research report and ensuring the accuracy of the data presented.