Effect Of Corporate Social Responsibility, Corporate Governance, Executive Compensation, And Political Cost On Tax Avoidance Practices In Banking Companies Listed In The Indonesian Capital Market For The 2017-2019 Period

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Effect of Corporate Social Responsibility, Corporate Governance, Executive Compensation, and Political Cost on Tax Avoidance Practices in Banking Companies Listed in the Indonesian Capital Market for the 2017-2019 Period

In today's complex business world, companies are faced with numerous challenges, including tax compliance. One of the factors that influence the practice of tax avoidance is the company's policy in corporate social responsibility (CSR), corporate governance, executive compensation, and political costs. This study aims to analyze the effect of these factors on tax avoidance in banking companies registered in the Indonesian capital market during the period 2017 to 2019.

Research Methodology

In this study, researchers used descriptive statistical analysis methods, classical assumption tests, regression tests, and hypothesis tests. The independent variables observed include corporate social responsibility, corporate governance, executive compensation, and political costs. Meanwhile, the dependent variable observed is the practice of tax avoidance. Of the total 43 registered companies, 26 companies were selected as samples using the purposive sampling method. The data used in this study are secondary data obtained from the company's annual report.

Research Result

The results of this study indicate that:

  1. Corporate Governance and Political Cost: Both of these variables have a positive and significant influence on the practice of tax avoidance. That is, the better the corporate governance and the higher the political costs borne by the company, the tendency to avoid taxes also increases. This shows that companies that apply good corporate governance principles tend to operate transparently and accountably, but in some cases, they are still looking for ways to minimize tax obligations.

  2. Executive Compensation: This variable has a negative and significant effect on the practice of tax avoidance. It can be interpreted that companies that provide high compensation to the executive tend to focus more on good tax compliance as part of their responsibilities. Executives who get good rewards may be more committed to avoiding legal risks caused by tax avoidance.

  3. Corporate Social Responsibility (CSR): Research shows that CSR has no significant effect on tax avoidance practices. This might indicate that even though the company is committed to CSR, it does not necessarily reduce tax avoidance efforts.

Additional Analysis

Seeing the results obtained, there are important implications for banking companies in Indonesia. A good corporate governance is expected to increase transparency and public trust, but there is a possibility that the company actually utilizes good performance to increase tax avoidance. Meanwhile, compensation strategies that pay attention to ethics and compliance can be an important step to encourage better tax awareness in the organization.

Politics also has a role that cannot be ignored in this context. High political costs can make companies tend to be more creative in designing tax avoidance strategies. This shows the importance of strict regulations and business environments that support transparency to reduce the practice of tax avoidance in the banking sector.

Conclusion

Overall, this study shows that there is a significant effect of corporate governance and political cost on tax avoidance, while CSR does not show the same effect. This provides valuable insight for stakeholders to formulate better policies in managing taxes in banking companies. In the future, it is important for companies to implement a better corporate governance and executive compensation policy to achieve optimal tax compliance while contributing to sustainable social development.

Recommendations

Based on the findings of this study, the following recommendations are made:

  1. Improving Corporate Governance: Banking companies in Indonesia should prioritize improving their corporate governance practices to increase transparency and public trust.
  2. Enhancing Executive Compensation: Companies should consider implementing executive compensation strategies that prioritize ethics and compliance to encourage better tax awareness in the organization.
  3. Reducing Political Costs: The government should strive to reduce political costs for companies by implementing strict regulations and creating a business environment that supports transparency.
  4. Promoting CSR: While CSR may not have a significant effect on tax avoidance, companies should still prioritize CSR practices as a way to contribute to sustainable social development.

Limitations of the Study

This study has several limitations that should be noted:

  1. Sample Size: The sample size of this study is relatively small, which may limit the generalizability of the findings.
  2. Data Quality: The data used in this study are secondary data obtained from the company's annual report, which may be subject to errors or biases.
  3. Time Period: The study only examines the period from 2017 to 2019, which may not capture the full range of tax avoidance practices in banking companies.

Future Research Directions

Future research should aim to address the limitations of this study by:

  1. Increasing Sample Size: Future studies should aim to increase the sample size to improve the generalizability of the findings.
  2. Improving Data Quality: Future studies should strive to use higher-quality data, such as primary data collected through surveys or interviews.
  3. Examining a Longer Time Period: Future studies should aim to examine a longer time period to capture the full range of tax avoidance practices in banking companies.

By addressing these limitations and future research directions, future studies can provide more comprehensive insights into the effect of corporate social responsibility, corporate governance, executive compensation, and political cost on tax avoidance practices in banking companies listed in the Indonesian capital market.
Frequently Asked Questions (FAQs) on the Effect of Corporate Social Responsibility, Corporate Governance, Executive Compensation, and Political Cost on Tax Avoidance Practices in Banking Companies Listed in the Indonesian Capital Market

In this article, we will address some of the most frequently asked questions related to the effect of corporate social responsibility, corporate governance, executive compensation, and political cost on tax avoidance practices in banking companies listed in the Indonesian capital market.

Q: What is the main objective of this study?

A: The main objective of this study is to analyze the effect of corporate social responsibility, corporate governance, executive compensation, and political cost on tax avoidance practices in banking companies listed in the Indonesian capital market during the period 2017 to 2019.

Q: What are the independent variables observed in this study?

A: The independent variables observed in this study include corporate social responsibility, corporate governance, executive compensation, and political costs.

Q: What are the dependent variables observed in this study?

A: The dependent variable observed in this study is the practice of tax avoidance.

Q: What is the research methodology used in this study?

A: The research methodology used in this study includes descriptive statistical analysis methods, classical assumption tests, regression tests, and hypothesis tests.

Q: What are the results of this study?

A: The results of this study indicate that corporate governance and political cost have a positive and significant influence on the practice of tax avoidance, while executive compensation has a negative and significant effect on the practice of tax avoidance. Corporate social responsibility (CSR) has no significant effect on tax avoidance practices.

Q: What are the implications of this study?

A: The implications of this study are that banking companies in Indonesia should prioritize improving their corporate governance practices to increase transparency and public trust. Companies should also consider implementing executive compensation strategies that prioritize ethics and compliance to encourage better tax awareness in the organization. The government should strive to reduce political costs for companies by implementing strict regulations and creating a business environment that supports transparency.

Q: What are the limitations of this study?

A: The limitations of this study include a relatively small sample size, potential errors or biases in the data, and a limited time period examined.

Q: What are the future research directions?

A: Future research should aim to address the limitations of this study by increasing the sample size, improving data quality, and examining a longer time period.

Q: What are the recommendations for banking companies in Indonesia?

A: The recommendations for banking companies in Indonesia are to improve their corporate governance practices, enhance executive compensation strategies that prioritize ethics and compliance, and reduce political costs by implementing strict regulations and creating a business environment that supports transparency.

Q: What are the recommendations for the government?

A: The recommendations for the government are to reduce political costs for companies by implementing strict regulations and creating a business environment that supports transparency.

Q: What are the implications for tax policy in Indonesia?

A: The implications for tax policy in Indonesia are that the government should consider implementing policies that promote transparency and accountability in the banking sector, such as stricter regulations and increased penalties for tax avoidance.

Q: What are the implications for corporate social responsibility (CSR) in Indonesia?

A: The implications for CSR in Indonesia are that while CSR may not have a significant effect on tax avoidance, companies should still prioritize CSR practices as a way to contribute to sustainable social development.

By addressing these frequently asked questions, we hope to provide a better understanding of the effect of corporate social responsibility, corporate governance, executive compensation, and political cost on tax avoidance practices in banking companies listed in the Indonesian capital market.