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Archives of Business Research – Vol. 9, No. 10

Publication Date: October 25, 2021

DOI:10.14738/abr.910.10985. Rahman, H. A., & Utami, W. (2021). Determinant of Tax Aggressiveness: Gender Diversity as Moderator. Archives of Business

Research, 9(10). 223-237.

Services for Science and Education – United Kingdom

Determinant of Tax Aggressiveness: Gender Diversity as

Moderator

RAHMAN, Huda Aulia

Universitas Mercu Buana

UTAMI, Wiwik

Universitas Mercu Buana

ABSTRACT

This research aims to analyze the effect of transfer pricing, profitability, capital

intensity, and advertising expense on tax aggressiveness with gender diversity as a

moderating variable. The population of this research is the manufacturing sector

companies listed on the Indonesia Stock Exchange for 2017-2019. The research

sample used is 98 companies in the manufacturing sector which were selected

based on the purposive sampling method. The research method used is a

quantitative method, with panel data regression analysis. The results of this

research were that profitability had a positive effect on tax aggressiveness, the

capital intensity had a negative effect on tax aggressiveness. In contrast, transfer

pricing and advertising expenses did not affect tax aggressiveness. Gender diversity

as a moderator was only able to moderate the effect of profitability on tax

aggressiveness.

Keywords: tax aggressiveness, transfer pricing, profitability, capital intensity, gender.

INTRODUCTION

Tax is one of the largest sources of state income originating from the community. The

government uses taxes to finance state expenditures. Countries with good economic

capabilities can be seen from the indicators of achieving the tax ratio for one period. However,

tax collection in Indonesia that uses a self-assessment system is prone to causing irregularities.

One of the deviations is the widespread practice of tax aggressiveness, namely actions that seek

to minimize the company's tax expense, either using legal methods in tax avoidance or illegal

methods, namely tax evasion.

Based on data obtained from Pajak.go.id, the following is the percentage of realized tax revenue

in the last 6 (six) years:

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Archives of Business Research (ABR) Vol. 9, Issue 10, October-2021

Services for Science and Education – United Kingdom

Table 1. Realization of Tax Achievements in 2015-2020

Year Target (in billion

IDR)

Realization (in billion

IDR)

Achievements

2015 1.294,26 1.060,83 81,96%

2016 1.355,20 1.105,73 81,59%

2017 1.283,57 1.151,03 89.67%

2018 1.424,00 1.315,51 92.23%

2019 1.577,56 1.332,06 84.44%

2020 1.198,82 1.069,98 89,25%

Source: https://pajak.go.id/

Table 1 provides an understanding that in the last six years, the tax revenue target in Indonesia

hasn't been achieved, where in the last position in 2020, the tax achievement ratio was only

89.25%. This shows that the achievement of taxes in Indonesia hasn't been maximized, where

there may still be taxpayers who carry out tax aggressiveness. Manufacturing companies are

one of the most significant contributors to tax revenue in Indonesia. However, according to the

Minister of Finance as reported by the https://news.ddtc.co.id/ site, tax revenues from

manufacturing companies until December 2019 received IDR 365.39 trillion. This amount

decreased by 1.8% and differed significantly from the previous year, which could grow by

10.9%.

The company's management expands by acquiring other companies to expand market share

and increase efficiency due to lower production costs. Benefits can also be obtained from

differences in tax rates between countries. For example, to minimize its input costs, Starbucks

could have a subsidiary in Costa Rica (Starbucks Farms Costa Rica Inc.) that sells coffee to

Starbucks USA. In addition, through transfer pricing, companies located in high tax jurisdictions

can "transfer prices" of income and expenses and shift their income to low tax jurisdictions to

avoid or reduce taxes (Barker et al., 2017).

The next factor that is likely to affect tax aggressiveness is profitability. Sidik and Suhono

(2020) argue that the higher the company's profitability, the higher the company's profit. The

amount of tax expense that a company must pay off depends on the company's profit because

profit is the tax base for the company. Profitability is a factor that can affect the tax expense

because companies that generate higher profits must, of course, pay higher taxes. The

contradiction, if the company only generates low profits, the tax that must be paid will be low,

or no need to pay at all if it is a loss.

The next factor that has the potential to affect tax aggressiveness is capital intensity. Capital

intensity, namely investment activities that companies carry out in connection with

investments in the form of fixed assets (Novitasari et al., 2017). The company's fixed-asset

investment certainly causes a depreciation expense related to the fixed assets. However, the

amount of depreciation charged on fixed assets according to tax regulations varies and can be

seen from the classification of the fixed assets (Andhari & Sukartha, 2017).

The next factor that can cause tax aggressiveness is advertising expense. Companies that pay

attention to reputation will have high advertising expenses. Companies tend to increase their

advertising expenses to allocate more money to finance advertising rather than paying taxes

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Rahman, H. A., & Utami, W. (2021). Determinant of Tax Aggressiveness: Gender Diversity as Moderator. Archives of Business Research, 9(10). 223-

237.

URL: http://dx.doi.org/10.14738/abr.910.10985

(Nguyen, 2015). The amount of advertising expenses that a company spends is also used to

reduce profits to minimize income subject to tax (M. Novitasari & Suharni, 2019).

The next factor that may affect tax aggressiveness is gender diversity. Dewi (2017) suggests

that one of the main issues related to the organizational structure and the benefits of the board

of commissioners & directors is gender diversity in the members of the two boards. Gender

diversity reflects the percentage difference associated with the typicality of each member of the

two boards. Gender diversity in institutions can offer various contributions in adding education,

finding new initiatives, and input to finalize specific problems, maximize policy planning,

experience, and many more (Ambarsari et al., 2019).

The purpose of this study is to test, update, and combine several independent variables that

have been tested in previous studies. The independent variables used are transfer pricing,

profitability (ROA), capital intensity, and advertising expenses, then the dependent variable

used is tax aggressiveness. This study also uses gender diversity to moderate the four

independent variables. The population used in this study is a manufacturing sector company

that went public on the Indonesia Stock Exchange (IDX) with a research period from 2017 to

2019.

The benefit of this research is to assess the factors that can cause the tax revenue target not to

be achieved due to tax aggressiveness carried out by taxpayers. The contribution given by this

research is to provide at least an overview of the tax aggressiveness practices carried out by

manufacturing companies so that the examiner can review these factors when examining the

taxpayer's financial statements. The weakness of this study is that it cannot describe the entire

transfer pricing transaction because the proxy used only describes the final receivable balance

of related party transactions.

LITERATURE REVIEW

Agency Theory

Agency problems where conflicting interests are found between the agent and the principal can

lead to aggressive tax practices. This happens because, on the one hand, management intends

to increase the compensation achieved through high profits. But, on the other hand, investors

want to reduce tax costs through low profits. So, to accommodate this agency problem, tax

aggressiveness has emerged to implement the two different goals (Rusydi & Martani, 2014).

Tax Aggressiveness

Tax aggressiveness is a behavior that aims to outsmart taxable profits through tax planning,

either by tax avoidance or by tax evasion (Frank et al., 2009). The legal difference between tax

evasion and tax avoidance is generally known as "the difference between working outside the

law and working under the law (although it doesn't reflect the spirit of the regulations) (Duff,

2009). Companies carry out tax avoidance strategies to reduce tax expenses (Hariani & Waluyo,

2019). Tax aggressiveness can also be assessed from how far the company is maneuvering to

minimize taxes by looking for loopholes that can be exploited in regulations (Mustika et al.,

2017). Aggressive tax action isn't only a result of deviation from tax regulations and the result

of a desire to save money that doesn't violate existing rules (Harnovinsah & Mubarakah, 2016).