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Amilia Rohma




The objective of this study is to examine the influence of institutional ownership, the proportion
of independent directors and audit quality on the level of tax aggressiveness as well as its
implications for the value of the company. This study uses six control variables, namely the size
of the company, capital intensity, profitability, investment decisions, financing decisions and
accruals. The population of this study consisted of 142 manufacturing companies listed in the
Indonesia Stock Exchange during the period 2011 to 2013. The sample of this study consisted of
77 manufacturing companies, which is determined based on purposive sampling method.
Multiple linear regressions analysis were performed two times to each one of the two models
developed in this study, whereby one time is by including control variables and the second time
is by excluding control variables. The results which include the control variable in the first
model show that proportion of independent directors and audit quality has positive influence on
the level of taxes aggressiveness, meanwhile institutional ownership variable has no influence on
the level of tax aggressiveness. The second model test results show that the level of tax
aggressiveness has negative influence on the value of the company. Furthermore, regression
results without including the control variables show that in the first model, the variable
proportion of independent directors and audit quality does not affect the level of tax
aggressiveness while institutional ownership variable has a positive effect on the level of tax
aggressiveness. In the second model by excluding control variable, the result show that level of
tax aggressiveness negatively affect the value of the company.

Keywords: institutional ownership, independent commissioner, audit quality, tax aggressiveness

level, the value of the company.

Taxes are one of the largest sources of state revenue with a significant percentage of 73%
of total state revenues in 2012 and projections of state revenues from the tax sector by 76.5% in
2013 (RAPBNP, 2013). With a large enough percentage, tax revenues have an important role in
the economy. In its implementation, an orderly, timely, and exact amount of tax payments does
not always run smoothly (Widjaja and Bunaidi, 2013). This is because there are differences in
interests between the government represented by the tax authorities and the company as a
corporate taxpayer. The greater the tax paid by the company, the state income will increase so
that the government wants tax revenues to increase from year to year.

Sari and Martani (2010) state that company owners would prefer management to take
aggressive tax actions because for the company, paid taxes are costs that reduce net income. The
existence of differences in tax interests between the government (tax authorities) and companies
causes management to take tax aggressiveness measures to reduce expenditures related to
taxation through actions that are allowed by law (tax avoidance) or illegally (tax evasion). The
aggressive tax inrended in this study is more specifically devoted to tax avoidance measures,
which according to Annisa and Kurniasih (2012), tax avoidance is an aggressive tax strategy
carried out by the company in minimizing the tax burden, so that this activity raises risks for the
company including fines and poor company reputation in the public eye.

Data obtained from http://kompas/com shows that in the year of tax receipts of Rp 872.6
Trillion in 2011, in 2012 tax revenues amounted to Rp 980.1 Trillion, in 2013 amounting to Rp
1,148.36 Trillion in which state tax has increased. In line with the increase in state tax revenues,
the level of tax resistance in Indonesia by taxpayers is increasing from year to year. This shows
that an increase in state revenues from the tax sector is not necessarily a good indicator to assess
compliance with tax payments because regulations made by the government can still be misused
by taxpayers. Government efforts to optimize revenue from the tax sector bay carrying out tax
reforms that aim to improve the voluntary compliance of taxpayers and increase the trust of
taxpayers towards good tax administration (Ardiyansah, 2014). One example of tax reform
carried out by the government is the change in corporate income tax rates with progressive tariffs
to a single rates (20% in 2009 and down to 25% in 2010) following the enactment of law No. 36
of 2008 as a change to the number law 7 of 1983 which took effect from January 1, 2009 but
until no aggressive tax measures such as tax avoidance remains things that tend to be chosen bay
management due to increasingly fierce competition in the national and global scope so that
companies are motivated to increase profit after tax (regardless from managerial opportunism).

Aggressive tax actions have an element of confidentiality because companies always

want to maintain reputation in the present of shareholders, so that it can reduce corporate
transparency so that corporate governance mechanisms need to be implemented to achieve good
corporate governance (Sartika, 2012). As an external corporate governance mechanism,
institutional investors function to monitor an control management’s actions not to take actions
that benefit themselves. This is because institutional investors tend not to want negative risk
management actions. The relationship between institutional ownership and the level of tax
aggressiveness in several previous studies was examined by Khurana and Moser (2009), Moore
(2012), Widjaja and Bunaidi (2013) and Fadhilah (2014).

In addition to the presence of institutional investors, the proportion of independent

commissioners also plays an important role in providing input to the board of directors regarding
company policy. Independent commissioners are non-affiliated parties with managements and
shareholders so that it is expected to prevent aggressive tax actions (Fadhilah, 2014). The resul
of the research conducted by Lanis and Richardson (2011) and Widjaja and Bunaidi (2013) state
that the proportion of independent commissioners has a negative effect on the level of corporate
tax aggressiveness.

Audit quality as one of the corporate governance mechanisms is also important indicator
and is related to control over aggressive taxation actions because it relates to the transparency of
disclosure of the company’s financial condition. The quality of audits carried out by Public
Accountant Offices (Kantor Akuntan Publik) Big 4 has greater incentives to detect and disclose
reporting errors in management (Maharani, 2015). Research Crabbe et al. (2010) in Widjaja and
Bunaidi (2013) found that audit quality had a positive effecton the level of tax aggressiveness.

According to Desai and Dharmapala (2009), the existence of tax planning in the form of
tax avoidance carried out by companies so that the tax burden can be reduced as low as possible
by utilizing existing regulations, will have a good impact on investor reactions so as to increase
stock market prices which have direct implications for increasing corporate value. On the other
hand, according to agency theory, it is possible that managers / agents will conduct rent
extraction (managers maximize personal benefits, for example by making aggressive financial
statements preparation (Fatharani, 2012) so that aggressive tax actions will be effective if the
agent is more concerned with the interests of companies and shareholders when doing corporate
tax planning (Lestari, 2014).

This study uses control variables to control for the influence of other variables on
dependent variable. The variables chosen by researcher to be controlled are company size,
capital intensity, and profitability for the first model, as well as an investment decisions, funding
decisions, and accruals for the second model. Company size becomes a control variable because
of variations in the amount of tax paid. The greater the assets owned, the profitability of the
company will increase and have a direct effect on the effective tax rate. Capital intensity is
controlled because it is related to the amount the amount of fixed assets owned by the company
(especially in this research are fixed assets owned by manufacturing companies) and affects the
amount of tax paid due to tax planning through depreciation of fixed assets. Companies with
higher profitability have an obligation to pay greater taxes so they tend to take aggressive tax
actions. The investment decision is controlled because investment spending provides a positive
signal about the company’s growth in the future, thereby increasing stock prices. Funding
decisions related to funding policies to finance the company’s operations through debt that will
affect the amount of tax to be paid due to tax benefits. Accrual is controlled because it is an
earnings management indicator that will affect the value of the company.

This study uses a sample of manufacturing companies listed on the Indonesian Stock
Exchange during the period 2011 to 2013. This study uses effective tax rate (ETR) to measure
the level of tax aggressiveness as used by Richardson and Lanis (2007), Sari and Martani (2010),
Sabli and Noor (2012), Widjaja and Bunaidi (2013), and Ardiyansah (2014). Effective tax rates
are obtained from the total income tax burden divided by pre-tax profit. ETR is used because it
can be used as a measure of how well the company manages its tax because effective tax rates
arise from the proportion of taxes paid based on the proportion of economic income (Ardiyansah,
2014). The dependent variable for the second model is company value measured using the
Tobin’s Q ratio according to Klapper and Love (2002); Black et al. (2003) in Saputra (2010)
because it includes components that are indicators of a company’s stock price in the form of
stock market value and debt market value and in accordance with the characteristic of companies
in Indonesia.

Based on the explanation above, the authors are interested in analyzing the influence of
institutional ownership, the proportion of independent commissioners, and the audit quality on
the level of tax aggressiveness and analyzing the effect of the level of tax aggressiveness on the
company value.

Conceptual Framing
Model 1

Independent Variables
Institutional Ownership

The Proportion of Independent

Dependent Variable
The audit Quality
Level of Tax
Control Variables
The Size ofCompany

Capital Intensity


Model 2
Independent Variable

Level of TaxAggressiveness

Variabel Dependen
Control Variables
The Value of Company
Investment Desicions

Funding Decisions