THE EFFECT OF THIN CAPITALIZATION ON TAX AVOIDANCE IN HEALTHCARE COMPANIES LISTED IN IDX FROM 2016 TO 2021

• Main Author: Sari, Prima
• Format: Theses
• Language: Indonesia
• Subjects: Manajemen umum
• Online Access: https://digilib.itb.ac.id/gdl/view/81789
• Institution: Institut Teknologi Bandung

According to OECD (2023), “Tax avoidance practices cost countries 100-240 billion USD in lost revenue annually, which is the equivalent to 4-10% of the global corporate income tax.” And according to Global Financial Integrity Report (2015), “Indonesia is ranked ninth in Asia concerning the issue of tax losses.” One of the tax avoidance practices is thin capitalization. Companies tend to choose debt over equity in their financing in this practice. This is because debt incurs interest expense which can be tax deductible. The Government of Indonesia (GOI) implemented thin capitalization rules to limit the debt shifting practice as a tax avoidance scheme in 2015. This study examines the effect of thin capitalization toward tax avoidance on healthcare companies listed in Indonesian State Exchange (IDX). Tax avoidance is proxied by Effective Tax Rate, while thin capitalization is proxied by Maximum Amount of Debt (MAD). There are two variable controls in this study; they are firm size and profitability. Firm size is proxied by the natural log of total assets, while profitability is proxied by return on assets (ROA). Based on six healthcare companies listed in IDX period 2016-2021, regression results indicate that thin capitalization significantly and positively affect tax avoidance. Companies with high thin capitalization have high effective tax rates. Meanwhile, firm size and profitability do not have a significant effect on tax avoidance.