The Influence of Leverage and Good Corporate Governance on Tax Avoidance in Pharmaceutical Sub-sector Companies Listed on the Indonesia Stock Exchange

Abstract

Purpose: This study aims to analyze the effect of leverage and good corporate governance on tax avoidance in pharmaceutical sub-sector companies listed on the Indonesia Stock Exchange (IDX).

Methodology/approach: This research employs a quantitative approach, utilizing multiple linear regression analysis. The sample consists of 10 companies selected through purposive sampling.

Results/findings: The F-test results indicate that leverage and good corporate governance have a significant effect on tax avoidance simultaneously. Partially, leverage, managerial ownership, institutional ownership, independent commissioners, and the audit committee each have a significant effect on tax avoidance. The coefficient of determination (R²) is 0.239, indicating that the model explains 23.9% of the variation in tax avoidance, while the remaining 76.1% is influenced by other factors not included in the study.

Conclusions:  These findings suggest that companies with higher debt levels and specific governance structures are more likely to engage in tax avoidance. Therefore, stronger oversight and improved corporate governance practices are necessary to enhance tax compliance.

Limitations: The research variables are still limited, and the quantitative approach also has limitations, as well as constraints associated with the Good Corporate Governance indicator used in this study.

Contribution: For regulators and tax authorities, the results of this research can serve as input in designing more effective tax supervision and regulatory policies, especially for companies with high leverage structures and suboptimal corporate governance. Regulators may consider strengthening regulations on tax reporting transparency and increasing audit and audit capacity to detect potential tax avoidance practices early.