THE EFFECT OF PROFITABILITY, LEVERAGE, AND CAPITAL INTENSITY ON TAX AVOIDANCE Apip- Muhammad Najmi Raisuddin
UNIVERSITAS DIPONEGORO
Abstract
This study examines the influence of internal financial factors profitability, leverage, and capital intensity on tax avoidance in manufacturing companies within the basic and chemical industry sectors listed on the Indonesia Stock Exchange (IDX) during 2020-2022. The objective is to assess whether these variables significantly contribute to firms^ tendencies to engage in legal tax minimization strategies.
Using a quantitative descriptive approach, the study analyses secondary data from audited financial reports. A purposive sampling method yielded 27 companies, resulting in 81 firm-year observations. Tax avoidance is proxied by the Effective Tax Rate (ETR), while the independent variables are Return on Assets (ROA) for profitability, Debt-to-Equity Ratio (DER) for leverage, and Capital Intensity Ratio (CIR) for capital intensity. Data analysis was performed using multiple linear regression with SPSS 26.
These results show that profitability has a significant negative effect on tax avoidance (p = 0.016- coefficient = -0.448), indicating that higher ROA is associated with more compliant tax behavior. In contrast, leverage (p = 0.255) and capital intensity (p = 0.585) do not significantly affect tax avoidance.
These findings suggest that only profitability significantly influences tax avoidance. This supports the idea that more profitable firms tend to demonstrate better governance and compliance. Regulators should focus oversight on less profitable firms, and companies are encouraged to maintain transparency in financial reporting. Future research should consider additional factors such as firm size or ownership structure to gain a broader understanding of tax avoidance behavior..
Keywords: Profitability- Leverage- Capital Intensity- Tax Avoidance
