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Combating tax aggressiveness: Evidence from

Indonesia’s tax amnesty program

Muhammad Arsalan Khan & Siti Nuryanah

To cite this article: Muhammad Arsalan Khan & Siti Nuryanah (2023) Combating tax
aggressiveness: Evidence from Indonesia’s tax amnesty program, Cogent Economics & Finance,
11:2, 2229177, DOI: 10.1080/23322039.2023.2229177

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Khan & Nuryanah, Cogent Economics & Finance (2023), 11: 2229177
https://doi.org/10.1080/23322039.2023.2229177

GENERAL & APPLIED ECONOMICS | RESEARCH ARTICLE

Combating tax aggressiveness: Evidence from
Indonesia’s tax amnesty program
Muhammad Arsalan Khan1 and Siti Nuryanah1*

Received: 02 January 2023

Abstract: Taxation has a vital role as a domestic financial source to achieve Sustainable
Accepted: 21 June 2023 Development Goals (SDGs). To increase domestic revenue, combating tax avoidance is
*Corresponding author: Siti Nuryanah, important, especially for Indonesia, one of the most populous countries with the fact that
Department of Accounting, Faculty of the 2020 country’s tax-to-GDP ratio decreased to 10.1% in 2020 which is below the Asia
Economic and Business, Universitas
Indonesia, Depok, Jawa Barat 16424, and Pacific average of 19.1%. This paper examines the effect of the tax policy of
Indonesia
E-mail: [email protected]
Indonesia, i.e., tax amnesty and other factors on tax aggressiveness. Indonesia is
taken as the case study for the specific characteristics of its tax reforms. The sample of
Reviewing editor:
Caroline Elliott, Economics, this study consists of 402 observations from manufacturing companies listed in the
University of Warwick Faculty of
Social Sciences, UK
Indonesian Stock Exchange (IDX) for the periods of 2013–2018. This study collected
secondary data and employed a purposive sampling method for the selection of sam­
Additional information is available at
the end of the article ples. Multiple regression analysis was used to examine the factors affecting tax aggres­
siveness. The results show that internal governance mechanisms, namely independent
commissioners and institutional ownership, as well as the company’s characteristics,
namely leverage and profitability, have a significant effect on tax aggressiveness. This
study, however, cannot find the effectiveness of tax amnesty in combatting tax aggres­
siveness. This study brings an implication for developing tax policies for companies in
Indonesia, to reduce tax aggressiveness.

Subjects: Economics; Finance; Business, Management and Accounting

ABOUT THE AUTHORS

Siti Nuryanah is a researcher and lecturer in Accounting and Tax at the Faculty of Economics and
Business, Universitas Indonesia. She is Head of the Academic Quality Assurance Unit of the Faculty. She
previously taught Accounting and Business at Victoria University and Monash University, Melbourne,
Australia. She is also a consultant in accounting, business, and tax. She has received various interna­
tional and national research grants. Her research spans accounting, tax, finance, governance, and
sustainability. She contributes to academic literature by writing books and papers published in national
and international refereed journals. Currently, she provides a short-term expert consultation to the
Directorate General of Taxes, Ministry of Finance, Republic of Indonesia, for tax compliance project
under the funding of Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH.
Muhammad Arsalan Khan is a highly accomplished scholar with expertise in accounting and taxation.
He completed his master’s degree in Accounting at Universitas Indonesia and is currently pursuing his
doctoral degree in Accounting at Universitas Airlangga, Indonesia. Throughout his academic career,
Mr. Khan has demonstrated exceptional skills in quantitative analysis and research methodology,
Siti Nuryanah particularly in the areas of accounting and taxation. He has published several research papers in
reputable journals and presented his findings at various international conferences. With his strong
academic background and expertise in accounting and taxation, Mr. Khan is well positioned to make
significant contributions to the accounting profession and help address the challenges facing the
industry today.

© 2023 The Author(s). Published by Informa UK Limited, trading as Taylor & Francis Group.
This is an Open Access article distributed under the terms of the Creative Commons Attribution
License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribu­
tion, and reproduction in any medium, provided the original work is properly cited. The terms on
which this article has been published allow the posting of the Accepted Manuscript in
a repository by the author(s) or with their consent.

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Keywords: Tax aggressiveness; tax avoidance; tax amnesty; effective tax rate;
manufacturing companies

1. Background of the study

Sustainable development goals (SDGs) have been set to end extreme poverty and boost inclusive
and sustainable growth by 2030. A massive investment in such tangible and intangible assets as
infrastructure and human capital is required to facilitate the achievement of the SDGs, indeed,
requires enormous financial resources. In this case, taxation as a source of domestic revenue has
a key role in financing the SDGs. Strengthening and improving the effectiveness and fairness of the
tax systems is important to enabling the tax collectors to effectively do their jobs and fight tax
evasion and tax avoidance which in the end raises more domestic revenue to achieve the SDGs.
Improving the effectiveness and fairness of the tax systems becomes more important especially
for an emerging country like Indonesia, the fourth most populous country in the world with tax
being the main revenue of the country (around 70%). In addition, Indonesia’s tax-to-GDP ratio
stood at 11% in 2018 which is the lowest amongst middle-income countries worldwide (Jakarta
Post, 2018); and this ratio decreased to 10.1% in 2020 which is below the Asia and Pacific average
of 19.1% (OECD, 2022). This figure suggests Indonesia’s narrow tax base and Indonesia’s low tax
compliance (Jakarta Post, 2018).

The aim to incorporate the SDGs issues into research on tax aggressiveness is to address
aggressive tax avoidance problems and achieve sustainable development goals (SDGs) (OECD,
2018; UNDP, 2020). By examining the tax contributions of companies to the countries in which
they operate, it is possible to understand how these contributions support the SDGs (OECD, 2018).
Tax avoidance schemes reduce tax contributions to host countries and limit the ability of govern­
ments to fund critical public goods and services, hindering progress toward the SDGs (UNCTAD,
2019). Tax aggressiveness can impede progress toward specific SDGs such as poverty alleviation
(SDG 1) and sustainable infrastructure (SDG 9) (OECD, 2021; UNDP, 2020). Investigating factors
such as tax policy, i.e.,, tax amnesty, and internal governance mechanisms such as independent
commissioner and institutional ownership, and other company’s characteristics such as leverage,
profitability, and firm size can provide insights into the impact of tax aggressiveness on tax
contributions to host countries.

Recognizing the urgency to a continuous improvement in the tax system and administration,
Indonesia has recorded quite long tax reform programs over the last 50 years (Brondolo et al.,
2008), the latest of which was in 2016. Claiming success for the 2016 tax amnesty, the govern­
ment continues to the second part of the tax amnesty program called “a voluntary disclosure
program” in 2022. Despite being a controversial revenue-raising tool of the government in com­
bating tax evasion since its long-term impact on tax compliance is questionable, this tax amnesty
program is argued to be impactful in generating immediate revenues for the government
(Nuryanah & Gunawan, 2022). Therefore, this policy is quite popular around the world as at least
38 countries have implemented tax amnesties (Hermansyah, 2016).

Extending the previous study of Nuryanah and Gunawan (2022) and other tax amnesty and
tax aggressiveness studies (such as Baer & Le Borgne, 2008; Bayer et al., 2015; Fadhila &
Handayani, 2019; Huda & Hernoko, 2017; Ibrahim et al., 2017; Inasius et al., 2020; Safuan
et al., 2022; Sayidah et al., 2019; Shevlin et al., 2017), this study focuses on 2016 Indonesia’s
tax amnesty which was claimed to be successful in generating short-term revenue for the
country. Specifically, this paper examines the effectiveness of the policy in combating tax
noncompliance especially tax avoidance which is argued to be the problem faced by the
country. Tax aggressiveness, which is part of tax avoidance activities, is a strategy by company
managers, which consists of practices, processes, and resources for the purpose to increase
the profit after all both legal and illegal corporate liabilities owed to the government and other
stakeholders (Badertscher et al., 2013; Onyali & Okafor, 2018). Taxpayers attempt to avoid the

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tax due to the lack of direct benefit of tax. Hence, the taxpayers consider tax more as a burden
(Ryandono et al., 2020). The companies look for loopholes to minimize the tax burden; the
more loopholes that are used, the more tax savings the company will be made so the
company is known to be more aggressive toward tax (Armstrong et al., 2015; Pasca et al.,
2018).

The previous study found that external factors such as tax policy can influence the company’s
tax aggressiveness (Bayer et al., 2015). Tax amnesty as one of the tax policies is part of the tax
reform agenda launched by the government to extend and intensify taxation. With the tax
amnesty program, the company’s efforts to avoid taxes or conduct tax aggressiveness would
be closely related to tax planning, which is important to be prepared in the period of tax amnesty.
Focusing on the tax amnesty program, this study also examines other factors that influence tax
aggressiveness including the internal factors as found by previous literature such as leverage
(Arianandini & Ramantha, 2018; Dharma & Ardiana, 2016; Lanis & Richardson, 2015; Suyono,
2018), profitability (Arianandini & Ramantha, 2018; Mohammadzadeh et al., 2013; Yazdanfar &
Öhman, 2015), firm size (Leksono et al., 2019; Sriviana & Asyik, 2013), independent commis­
sioners (Lestari et al., 2019; Suyanto & Supramono, 2012), and ownership structure (Bird &
Karolyi, 2017; Bushee, 2001; Y. Chen et al., 2015; David et al., 2001; Khan et al., 2017;
Kholbadalov, 2012).

Most of the previous studies only focused on factors that were more internal to the company,
but only a few studies have discussed external factors such as government policies on tax
aggressiveness. As a result, previous research has not been able to answer how the effect of tax
reform, i.e., tax amnesty on tax aggressiveness. With this research gap, as the Indonesian
government held a tax amnesty program, this study is interested in discussing how tax amnesty
affects tax aggressiveness. Regarding the determinant factors discussed earlier, the current study
will further confirm these determinant factors on tax aggressiveness, especially after tax amnesty.

In addition to tax amnesty as an external control mechanism, the internal governance controlling
mechanism such as independent commissioners suggest that they will have greater influence to
supervise management performance as well so that that management’s aggressive behavior
towards corporate taxes will decrease (Suyanto & Supramono, 2012). Another internal governance
mechanism namely institutional investors which is usually large shareholder in the company and also
have voting power can force managers to seek opportunities for self-serving behavior to improve
economic performance so there is a possibility of tax aggressiveness (Shleifer & Vishney, 1986).
Characteristics of a firm such as leverage which represents how many firm assets are financed by
debt amount suggest high firm leverage shows an additional interest expense which minimizes the
profitability of the firm that can decrease the tax cost of the firm (Suyono, 2018). Another company’s
characteristic, namely profitability which reflects the company’s financial performance, suggests that
the higher the profitability owned by the company, the greater the tendency to carry out tax
aggressiveness (Hayati, 2023). This study also examines firm size as a control variable if the company
size is large, the more it will be monitored by the government and this will lead to two possibilities,
namely the tendency to comply (compliance) or tax aggressiveness (Leksono et al., 2019).

This study fills the gap in tax aggressiveness literature by focusing on the effect of the tax amnesty
policy. The sample of this study is corporate taxpayers which are the target of the 2016 tax amnesty
program, not SME taxpayers as examined by a previous Indonesian study (Inasius et al., 2020). The
structure of the paper is as follows: after the introduction, previous literature is presented. Then, the
third section presents the research method and data analysis. This is followed by an analysis and
discussion of the results. The last section presents the conclusion and implications of the study.

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2. Literature review and hypotheses development

2.1. Agency theory, tax aggressiveness, and tax amnesty

Agency theory deals with the problems and solutions associated with the responsibilities of
principals to agents related to the conflicting interests between principal and agent (Jensen &
Meckling, 1976). An agency relationship is a contract where the owner as principal orders the other
party: the manager as an agent to perform services on behalf of the principal (owner) and provide
authority or delegate to the agent (manager) to make the best decision for the principal (owner)
(Nugraha & Meiranto, 2015). This agency theory is based on three human nature assumptions
which are 1) humans are selfish (self-interest); 2) humans have a limited capacity to think about
future perceptions (bounded rationality); and 3) humans always escape from risk (risk averse). This
theory is a development of studies on how to arrange the work agreements to motivate the
manager as the agent to work based on the wishes of the owner as principal. Corporate managers
do not act well as agents because they can take benefits from tax aggressiveness for their benefit
(Kurniawan & Nuryanah, 2017). Agency theory also implies the existence of information asymme­
try between owner and manager. Manager as a part of company management knows more about
internal information so that there is a gap in the information between the management and the
owner. The conflict in the interests of the owner as principal and manager as an agent furthermore
leads to aggressive tax avoidance behavior because, on the one hand, management wants to
increase compensation through high returns, while shareholders want to minimize tax expenses
through low earnings. Therefore, to bridge the agency problem, aggressive tax avoidance behavior
will emerge to optimize these two interests.

There are two perspectives in assessing tax aggressiveness activities within the framework of
agency problems, which are from the point of view relationship manager (agent) and the owner
(principles). In the first perspective, there is an agreement between management and principals.
Reducing tax payments is an activity that is beneficial to management and aims to maximize
shareholder interests (Hanlon & Heitzman, 2010). The second perspective explains the differences
in interests between management and company owners. This perspective is illustrated by Desai
and Dharmapala (2006) by proposing a situation in which managers want to maximize their
interests by avoiding corporate tax payments, and they will use company resources for personal
benefit. Meanwhile, shareholders’ compliance with the tax authorities aims to reduce the transfer
of company resources to managers (Hanlon & Heitzman, 2010).

OECD defines tax aggressiveness strategies as tax planning that exploits gaps and violations in
tax regulation to manipulate business transactions or hide the profit to pay minimal or zero tax
(Nuryanah et al., 2023). The concept of tax aggressiveness is the same as tax avoidance, tax
mitigation, tax planning, tax shelters, and legal and illegal tax minimization which is regulated by
the taxation authorities (Armstrong et al., 2012; Badertscher et al., 2013; Ogbeide & Iyafekhe,
2018). Tax aggressiveness is the combination of tax avoidance (legal) and tax evasion (illegal). Tax
avoidance is an effort by taxpayers to avoid or reduce tax amounts that need to be paid, through
legal loopholes which do not mismatch laws and regulations by the state (Armstrong et al., 2015).
Meanwhile, tax evasion is the act of violating tax rules, and it can be called tax fraud and criminal
punishment can be enforced (Kim & Im, 2017). Tax aggressiveness can be committed by reducing
taxable profit companies through systematic tax planning activities, either legally or illegally,
called tax aggressiveness. Tax aggressiveness is a high-risk action because when it is unveiled,
fines can be imposed, and the company’s reputation will be publicly damaged. Minimal sanctions
imposed for violations of tax rules, however, would more likely result in taxpayers committing
violations.

Tax aggressiveness, in the context of agency theory, provides the benefit to save tax payments
so that owner can be more greatly benefited through tax savings or investing the savings to fund
company investments to maximize shareholder value and increase company profits in the future.
For the agent, tax aggressiveness will increase the bonus from the owner for the increase in net

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income due to the tax savings it does. Meanwhile, the disadvantages of corporate tax aggressive­
ness are the possible sanction of fine imposition and decreased share price upon the disclosure of
tax aggressiveness. For the state, this tax aggressiveness taken by the company will minimize
state tax revenue (Suyanto, 2012).

Turning to the context of tax amnesty, from the agency theory’s point of view, the government,
as a tax policymaker, acts as the principal, while the company acts as the agent with opposing
interests. The government aims to increase the country’s revenue by applying a tax on companies,
while a company as a taxpayer attempts to decrease the tax burden through tax aggressiveness.
Therefore, to minimize the agency problem, the tax amnesty program is argued as the solution to
optimize these two conflicting interests because tax amnesty provides some benefits for taxpayers
which in the end motivate them to pay tax liability and comply with the tax regulations.

As a highly populated country that depends highly on tax revenue for public expenditure,
Indonesia has conducted tax amnesty programs several times. Some of the programs, i.e., which
were held in 1964 and 1984, are argued as not successful as only gained low participation of
taxpayers. While the 2008 tax amnesty is argued to be very successful as in the short term the
collected revenue exceeded the target of the last 10 years of that period (Tambunan, 2015).
Following this, the latest tax amnesty which was held in 2016 before the current 2022 tax
amnesty, which is the subject of this study, aimed to repatriate the capital and assets deposited
by taxpayers abroad to avoid taxes applied in Indonesia.

One of the prominent studies on tax amnesty argues that tax amnesty is the government’s
short-period program granted to a corporate taxpayer to pay a defined amount of tax (Baer & Le
Borgne, 2008). In return, the corporate taxpayers would get the benefit of forgiveness of a tax
liability which includes relief of interest and penalties. Tax amnesty is also often used to obtain
correct data on taxpayers so that in the future it can be used as a basis for increasing law
enforcement on tax compliance and extracting tax revenues (Cordes et al., 1999). However, in
the long term, it is argued that honest taxpayers, after the amnesty program ends, can even be
dishonest because they hope that in the future there will be another tax amnesty. Then, the
provision of a tax amnesty is also feared to cause a sense of injustice to those who have been
honest taxpayers. The granting of amnesty is also feared to indicate the opportunities and
conveniences of committing tax aggressiveness.

Based on the discussion above, it is clear that tax amnesty would indirectly affect the existence
of tax aggressiveness for taxpayers to prepare tax payment plans. While there are opposing views
on tax amnesty, this study argues that in its nature, tax policy including tax amnesty is the
government’s tool to discipline the taxpayers to be compliant taxpayers. Therefore, in line with
the previous studies specifically in Indonesia and other countries which found a positive significant
effect of tax amnesty on tax aggressiveness and/or tax compliance (Bayer et al., 2015; Rahayu,
2017; Renaldi, 2017; Rusmadi, 2017), the following hypothesis is developed:

H1: There is a positive association between tax amnesty and tax aggressiveness.

2.2. The effect of leverage on tax aggressiveness

Debt is one of the external sources of financing the companies use as an alternative to their
capital structure. One proxy for firm capital structure is leverage which is a ratio that measures
the extent of firm asset finance by debt. Leverage also shows the use of debt to maximize
profit. However, fixed interest expense will be created in the form of debt, where the higher the
debt amount the higher the interest that should be paid by a firm which shows less net profit
before tax in the financial statements. In other words, it will also reduce taxable income
because the greater the debt, the greater the tax incentives to the firm. In this situation,

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a manager’s behavior often influences to show a lot of debt in a financial statement while
preparing an alternative capital structure, which will minimize the tax cost (Richardson & Lanis,
2007). Some of the previous studies indicate that there is an effect of leverage on tax aggres­
siveness and prove that the greater the company’s leverage ratio, the lower the effective tax
rate (ETR) which comes from the interest payable that minimizes the tax burden. It indicates
that leverage has a positive influence on tax aggressiveness (Dharma & Ardiana, 2016; Lanis &
Richardson, 2015; Wahyuni et al., 2017). Based on the discussion above, the following hypoth­
esis is developed:

H2: There is a positive association between leverage and tax aggressiveness.

2.3. The effect of profitability on tax aggressiveness

Profitability is the ability of the firm to make profits during a specific period. According to Gitman
(2012) profitability is the ratio of revenues to costs using a company’s both current and fixed
management assets in productive activities. Profitability can be an indicator of the efficiency of
a company (Majed et al., 2012). In addition to that, the effectiveness can be measured through the
profitability ratio. Accordingly, good performance will be shown through the success of the
management in generating maximum profits for the company. According to Hamilah (2020), the
company’s profitability can be measured using the return on assets (ROA) ratio, gross profit margin
(GPM), net profit margin (NPM), return on equity (ROE), operating ratio (OPR). In this study, ROA is
used to measure profitability. A high ROA indicates better performance. This means that manage­
ment is increasingly effective in utilizing the company’s assets to make profits.

The higher the profitability of the company, the more likely it will affect the amount of income tax
expense to be paid (Adisamartha & Noviari, 2015). High profitability ensures that the firm will be able to
easily pay the taxes charged, which allows the principal (the government) to gain from high profitability.
Additionally, Manzon and Plesko (2001) show that there is a negative association between profitability
and tax aggressiveness. Therefore, companies take advantage of tax exemptions and make more
efficient use of tax deductions and credits. In line with Mohammadzadeh et al. (2013), Yazdanfar and
Öhman (2015), and Gryčová and Steklá (2015) who show that profitability has a negative effect on tax
aggressiveness. Based on the discussion above, the following hypothesis is developed:

H3: There is a negative association between profitability and tax aggressiveness.

2.4. The effect of independent commissioner on tax aggressiveness

Independent commissioners can be defined as commissioners who come from outside the com­
pany and have no relationship with the internal company, either directly or indirectly. The com­
pany appoints independent commissioners to oversee how the organization within the company is
run and mediates the rule-compliant strategic or policy decisions such as tax. Independent
commissioners are believed to be the mediators between the two parties because they are
objective and have a small risk of internal conflict (Ardyansah & Zulaikha, 2014).

The board of commissioners has a significant role in making a decision and making manage­
ment policies in accordance with the wish of owners (Putra et al., 2019). Independent commis­
sioners have quite an influential role in the company’s tax payment. According to Suyanto and
Supramono (2012), if independent commissioners are high, they will supervise management
performance better, so that management’s aggressive behavior towards corporate taxes will
decrease. Independent commissioners always ensure that the company follows the laws and
regulations. Thus, the company with much independent commissioner will do less tax aggressive­
ness. Based on the discussion above, the following hypothesis is developed:

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H4: There is a negative association between an independent commissioner and tax

aggressiveness.

2.5. The effect of institutional ownership on tax aggressiveness

Institutional ownership is defined as the proportion or percentage of shares held by such financial
institutions as investment companies, insurance companies, or banks (Fadhilah, 2014). Tax aggres­
siveness is used by a company to save money on taxes, but it can also result in penalties from the
tax authority, such as implementation costs and agency costs. As a result, whether increasing
institutional ownership affects tax aggressiveness remains an empirical question (S. Chen et al.,
2010). Agency theory argues that the principal asks the agent to increase the company’s perfor­
mance and value by guaranteeing compensation to managers. The consequence is that institu­
tional ownership entrusts managers with the task of overseeing firm operations to improve
company performance. The aim is that managers obey the rules and avoid mismatches of the
information in the financial statements.

According to Shleifer and Vishney (1986), institutional investors play an essential role in super­
vising, regulating, and persuading managers. They suggest that because of the substantial share­
holdings and voting power institutional shareholders can force managers to focus on economic
performance and avoid self-serving behavior. Inst.itutional investors have an additional motivation
to guarantee that the firm makes corporate decisions that maximize shareholder wealth as this is
the fiduciary responsibility of the institutional owner (Grossman & Hart, 1980; Bushee,2001; David
et al., 2001) . According to Y. Chen et al. (2015), Khan et al. (2017), Bird and Karolyi (2017), and
Azmi and Ramadhani (2019), there is a positive relationship between institutional ownership and
tax aggressiveness. Thus, this study hypothesizes that the greater the number of shares owned by
the institution, the more aggressive the firm is toward tax. Based on the discussion above, the
following hypothesis is developed:

H5: There is a positive association between institutional ownership and tax aggressiveness.

2.6. Research framework

Figure 1 illustrates the relationship between independent variables (tax amnesty, profitability,
leverage, independent commissioner, and institutional ownership) and the dependent variable
(tax aggressiveness). According to Figure 1, this study intends to test the effect of these factors
on tax aggressiveness. Based on previous literature, tax amnesty, leverage, and institutional
ownership have positive associations with tax aggressiveness, while profitability and the indepen­
dent commissioner have a negative association with tax aggressiveness which have been dis­
cussed in detail in the hypotheses’ development. Meanwhile, firm size is used as a control variable
and is measured using the natural log calculation of total assets. The larger the size of the
company, the more tax aggressive they are, and vice versa (Chytis et al., 2019).

3. Methodology

3.1. Population and sample

The population of this research is manufacturing firms listed on the Indonesian Stock Exchange
(IDX) from 2013 to 2018. The period 2013–2018 was chosen to cover the conditions before and
after the implementation of the 2016 Tax Amnesty Policy. The reason for choosing the manufac­
turing industry is because this sector is the mainstay of the Indonesian economy which contributes
greatly to national economic growth and contributes greatly to tax revenue. In Indonesia, the
manufacturing sector continues to be the most important contributor to the country’s economic
growth. Based on the data from the Central Statistics Agency of Indonesia the manufacturing
companies contributed 21.5% percent in 2015 and 21.4% in 2016 while in 2017 it reached 19.9%
to total economic growth. Meanwhile, the year 2020 data show that the manufacturing sector is

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Figure 1. Research framework. H1+

Tax Amnesty

H2+
Leverage

H3
Profitability
Tax Aggressiveness
Independent H4+
Commissioner

H5-
Institutional
Ownership Firm Size

the biggest contributor which contributes 19.88% to the total GDP of Indonesia followed by other
sectors, such as agriculture, forestry, and fishing which contribute 13.7%. In the lower percentage,
the sectors of wholesale and retail trade, repair of motor vehicles and motorcycles contribute
12.93%. Coming next are construction sector which contributes 10.71%, while the fifth biggest
contributor is mining and quarrying which contributes 6.44% (Statista, 2021).

This study uses purposive sampling techniques to collect the data. The sampling criteria estab­
lished in this study were determined as follows:

(1) Companies that consecutively provide annual reports on the Indonesia Stock Exchange and
publish audited financial reports.
(2) The companies have not suffered a loss from 2013 to 2018. The company which suffered
loss only in the individual year of the above following years because the company which
suffered loss has the incentive to pay the minimum tax or even avoid tax so that it cannot
be balanced with the profitable company that pays full tax (Fadhila, 2019; Ginting, 2016).
The unbalanced data are also used to gather more observations. The following are the
details of the sample used in this study.

3.2. Data analysis method

Quantitative analytic methods were utilized to analyze the data. This study uses statistical testing
assisted by SPSS for quantitative analysis using multiple linear regression tests by performing the
previous classical assumption test. The value of ETR is in the range of 0–1, but because ETR is
a negative proxy, the value is multiplied by minus one (−1) to ease the interpretation. To measure
tax amnesty, this study develops a dummy variable with coded 1 for after-tax amnesty and coded
0 for before-tax amnesty. Therefore, the years 2013 to 2015 are before the tax amnesty, while
2016 to 2018 are after the policy. For regression, this study conducted an entry method to analyze
the association between independent and dependent variables. Enter (Regression) is a procedure
for variable selection in which all variables in a block are entered in a single step. The model used
in this study is presented in the following:

where:

α = Constant

β1,2,3,4,5,6 = Regression Coefficient

TA = Tax Aggressiveness

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DTA = Dummy Tax Amnesty: 0 = Periods before Tax Amnesty (2013–2015)

= Periods of and after Tax Amnesty (2016–2018).

ROA = Return on asset (profitability)

IC = Independent Commissioner

IO = Institutional Ownership

SIZE = Firm Size

E = Error

4. Results

4.1. Results of descriptive analysis

Table 1 depicts the total obersavtion used in this study. Based on Table 2, the mean leverage is
0.43, while profitability, firm size, Independent Commissioner, Institutional Ownership, and ETR are
0.11, 20.76, 0.377, 0.62, and −0.26, respectively. ETR 26.1% which is higher than the current
Indonesian statutory tax rate (25%) suggests in general the sample of the study did not conduct
tax aggressiveness.

4.2. Results of regression analysis

Table 3 shows that the data do not exhibit multicollinearity, as indicated by a VIF value of <10 and
a tolerance value of >0.05. To test for heteroscedasticity, the study used the Glejser Test, and the
results showed that the sig value for each variable is >0.05, indicating the absence of heterosce­
dasticity. Table 3 shows further that the variables that have a significant influence on tax aggres­
siveness are leverage, profitability, and independent commissioners, while tax amnesty and
institutional ownership do not significantly influence tax aggressiveness. The results show that
leverage is statistically significant with α 1% on tax aggressiveness. In this case, every increase of
1% leverage would increase the level of tax aggressiveness by 0.077. This result accepted the
hypothesis and is in line with Richardson and Lanis (2007).

The results also show that profitability is statistically significant with α 1% on the tax aggressive­
ness. In this case, every increase of 1% in profitability would decrease the level of tax aggressiveness
by 0.147. This result is consistent with the studies of Rani et al. (2018), Yazdanfar and Öhman (2015),
Gryčová and Steklá (2015), Mohammadzadeh et al. (2013) Noor et al. (2010), and Manzon and Plesko
(2001) which show that profitability has a negative significant effect on tax aggressiveness.

The third variable that has a significant effect on tax aggressiveness is the independent com­
missioner which is statistically significant with α 5%. In this case, every 1% increase in

Table 1. Data sample

Description Total
Initial sample 174
Manufacturing companies (2013–2018)
Companies with missing data 5
Companies that suffered losses in the period 2013– 99
2018
Total sample 70
Outlier data 3
Final sample 67
Total observation (67 × 6 years) 402
Source: Processed Author 2021

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Table 2. Descriptive statistics

Variable Min Max Mean Std.dev
Leverage 0.01 0.94 0.43 0.18
Profitability 0.0013 0.8849 0.1180 0.1139
Firm size 11.18 29.34 20.76 2.97
Independent 0.0 0.75 0.377 0.204
commissioner
Institutional 0.0 0.99 0.62 0.27
ownership
ETR (tax 0.124 0.929 0.261 0.988
aggressiveness)
Observation 402

independent commissioner would increase the level of tax aggressiveness by 0.072. This finding is
consistent with Armstrong et al. (2015) who concluded that the number of independent commis­
sioners has a positive effect on tax aggressiveness.

Finally, institutional ownership also has a significant effect on tax aggressiveness with α 10%. In
this case, every 1% increase in institutional ownership would increase the level of tax aggressive­
ness by 0.026. This finding is consistent with previous studies (Azmi & Ramadhani, 2019; Bird &
Karolyi, 2017; Bushee, 2001; Y. Chen et al., 2015; David et al., 2001; Grossman & Hart, 1980; Khan
et al., 2017) that institutional ownership has a positive effect on tax aggressiveness.

4.3. Robustness test: t-test analysis

To confirm the validity and reliability of the results obtained in this study, this study conducts
a sensitivity test of the findings. In this case, the primary study examined the effect of tax amnesty
on tax aggressiveness using a dummy variable before and after the amnesty period and found no
significant effect. To further test the robustness of the results, a t-test was conducted on the data
to ensure that the findings were not affected by the use of the dummy variable. The results of the
t-test confirmed the primary study’s findings, as there was still no significant effect of tax amnesty
on tax aggressiveness.

Based on the results of the t-test in Table 4, the calculated p-value was found to be greater than
0.05. Therefore, it can be concluded that there is no statistically significant difference in tax aggres­
siveness before and after tax amnesty. This result confirms the findings of the primary study, which
also found no significant effect of tax amnesty on tax aggressiveness using a dummy variable.

5. Discussion
This study analyzes the effect of tax amnesty, leverage, profitability, independent commissioner,
and institutional ownership on tax aggressiveness. Based on the findings of hypotheses testing in
Table 3, the result is consistent with the previous studies which found that tax amnesty programs
do not have any effect on tax aggressiveness because the company taxpayers may choose to take
advantage of the next tax amnesty program. This is because tax amnesties do not impose
penalties or disincentives for future non-compliance, and taxpayers may have viewed the program
as a one-time opportunity to avoid penalties rather than a long-term commitment to tax com­
pliance (Alm & Beck, 1993; Alm et al., 1990; Haris & Ghofur, ; Said, 2017; Torgler & Dan Schaltegger,
2005). From the agency theory’s point of view, the insignificant result of the tax amnesty in this
study suggests that the tax amnesty cannot be found as an effective mechanism to motivate
corporate taxpayers (the agent) to comply with tax regulated by the government (the principle). In
a nutshell, this study cannot find tax amnesty as an effective external governance mechanism that
can control the opportunist behavior of the managers in committing tax aggressiveness.

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 Table 3. Regression tests
Tax aggressiveness
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Unstandardized Standardized Collinearity statistics

Independent
variables Expected signs (B) (β) Sig Tolerance VIF
Tax amnesty + 0 −0.003 0.953 0.969 1.032
Khan & Nuryanah, Cogent Economics & Finance (2023), 11: 2229177

Leverage + 0.077 0.173 0.001*** 0.923 1.084

Profitability - −0.005 −0.166 0.001*** 0.892 1.122
Independent - 0.072 0.112 0.025** 0.947 1.057
commissioner
Institutional ownership + 0.026 0.085 0.09* 0.946 1.057
Firm size (Ln total asset) + −0.147 −0.025 0.616 0.929 1.076
Constant −0.066
R2 0.078
Adj R2 0.064
F 5.861
Sig 0
Notes: *= significant at p < 0.1, **= significant at p < 0.05, ***= significant at p < 0.01.

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 Table 4. t-Test
Paired differences
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95% Confidence interval of

the difference
Std. error
Mean Std. deviation mean Lower Upper t df Sig (2-tailed)
Pair 1 Before tax–after 0.000442 0.115516 0.008148 −0.01563 0.016509 0.054 200 0.957
Khan & Nuryanah, Cogent Economics & Finance (2023), 11: 2229177

tax

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The result of this study shows that leverage is positively significant on tax aggressiveness in
manufacturing firms in Indonesia (H2 is accepted). This result is consistent with Richardson and
Lanis (2007) who demonstrate that a greater leverage ratio indicates that the company is utilizing
a greater quantity of money from a third party, resulting in a higher debt interest expense. If the
interest expense becomes high, it will reduce the company’s tax burden. The results of this study
conform to the finding of previous studies which found that leverage has a significantly positive
relationship to tax aggressiveness (Chytis et al., 2019; Dharma & Ardiana, 2016; Lanis &
Richardson, 2015; Salaudeen & Ejeh, 2018).

Profitability shows a negative association with tax aggressiveness (H3 is accepted). The result is
in line with Rani et al. (2018), Yazdanfar and Öhman (2015), Gryčová and Steklá (2015),
Mohammadzadeh et al. (2013), Noor et al. (2010), and Manzon and Plesko (2001) who show that
there is a negative relationship between profitability and tax aggressiveness, suggesting that
companies take advantage of tax exemptions and make more efficient use of tax deductions
and credits. A negative relationship between profitability and tax aggressiveness suggests further
that high profitability ensures that the firm will be able to easily pay the taxes charged, which
allows the principal (tax authority) to gain from high profitability.

Meanwhile, independent commissioner shows a positive significant effect on tax aggressiveness

in manufacturing firms in Indonesia. While it is statistically significant, the positive sign is different
from the expected sign. This result supports the study conducted by Armstrong et al. (2015) which
concluded that in the Indonesian case, independent commissioners have a significantly positive
effect on tax aggressiveness. In this condition, even when the number of independent commis­
sioners is high, the company’s tax aggressiveness will continue to be high. Our result is supported
by Armstrong et al. (2015) who state that the selection of independent commissioners in
Indonesia does not place much emphasis on competence and integrity so the supervision carried
out by independent commissioners is accordingly poor. Independent commissioners usually do not
understand the background and complexity of the company’s business activities which causes
independent commissioners to be less familiar with tax aggressiveness actions taken by company
management which implies a positive relationship between independent commissioners and tax
aggressiveness (Armstrong et al., 2015).

Institutional ownership is also statistically significant with α 10% on tax aggressiveness (H5 is
accepted). The finding of this study conforms to previous studies (Azmi & Ramadhani, 2019; Bird &
Karolyi, 2017; Bushee, 2001; Y. Chen et al., 2015; David et al., 2001; Grossman & Hart, 1980; Khan
et al., 2016) that institutional ownership plays its fiduciary function to guarantee that the firm
makes corporate decisions that maximize shareholder wealth.

6. Conclusions, implications, and suggestions for future research

This study aims to analyze the effect of tax amnesty, leverage, profitability, firm size, independent
commissioner, and institutional ownership on tax aggressiveness. Based on the analysis, the result
of this study shows that leverage, profitability, independent commissioner, and institutional own­
ership have a significant influence on tax aggressiveness, while tax amnesty and firm size are not
found to significantly affect tax aggressiveness in manufacturing companies in Indonesia. This
study brings implications for taxpayers and regulators. It is recommended that companies pay
attention to every decision that will be made in accordance with applicable tax regulations, in
addition to compliance with the rules. Company management also needs to carry out more
incentive supervision so that tax avoidance behavior within the company can be minimized
because tax aggressiveness has a risk in the future. Meanwhile, as for regulators, this research
provides an overview to reduce tax aggressiveness action by companies. This study can be referred
to develop policies related to tax regulations for large companies in Indonesia, to reduce tax
aggressiveness by large corporations. As there is no significant association between tax amnesty
and tax aggressiveness, regulators can review the long-term effect of this policy.

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This research is inseparable from limitations that need to be considered for future readers and
academics who want to research this topic further. This study limits its scope only to the manufactur­
ing companies listed on the Indonesia Stock Exchange, so it does not describe all sectors listed on the
stock exchanges. Therefore, future studies may fill the gap by taking samples from other sectors as
well, so that the result can be more generalized. The tax aggressiveness is measured using only the
ETR ratio. Future research can use other measures like CETR, GAAP ETR, discretionary permanent BTDs
(DTAX), book-tax-differences BTD, tax shelter activity, marginal tax rate, and unrecognized tax benefit.
The independent variables can also be extended using different proxies for internal governance
controlling mechanisms other than independency of commissioners and institutional ownership,
such as diversity in the board of commissioners, and family ownership for the case of Indonesia and
other East Asian countries, as it is found in this region, the company is more family-owned companies.
Finally, to investigate how tax policies such as tax amnesty and tax aggressiveness affect specifically
SDGs such as poverty alleviation (SDG 1) and sustainable infrastructure (SDG 9), future studies can
examine more macroeconomic data such as poverty and public capital expenditure.

Funding E-Jurnal Akuntansi, 22(3), 2088–2116. https://doi.org/

This research was funded by PUTI Q1 Universitas 10.24843/EJA.2018.v22.i03.p17
Indonesia (NKB-371/UN2.RST/HKP.05.00/2022) Armstrong, C., Blouin, J. L., Jagolinzer, A. D., &
Larcker, D. F. (2015). Corporate governance, incen­
Author details tives, and tax avoidance. Journal of Accounting and
Muhammad Arsalan Khan1 Economics, 60(1), 1–17. https://doi.org/10.1016/j.jac
ORCID ID: http://orcid.org/0000-0002-9214-1593 ceco.2015.02.003
Siti Nuryanah1 Armstrong, C., Blouin, J., & Larcker, D. (2012). The incen­
E-mail: [email protected] tives for tax planning. Journal of Accounting and
ORCID ID: http://orcid.org/0000-0002-5836-3870 Economics, 53(1), 391–411. https://doi.org/10.1016/j.
1
Department of Accounting, Faculty of Economic and jacceco.2011.04.001
Business, Universitas Indonesia, Depok, Indonesia. Azmi, F., & Ramadhani, L. (2019). Factors affecting tax
aggressiveness in plantation companies listed
Disclosure statement 2014-2017. Journal of Accounting Science, 3(1),
No potential conflict of interest was reported by the author(s). 49–59. https://doi.org/10.21070/jas.v3i1.2678
Badertscher, B., Katz, S., & Rego, S. (2013). The separation of
Citation information ownership and control and corporate tax avoidance.
Cite this article as: Combating tax aggressiveness: Journal of Accounting and Economics, 56(2–3), 228–250.
Evidence from Indonesia’s tax amnesty program, https://doi.org/10.1016/j.jacceco.2013.08.005
Muhammad Arsalan Khan & Siti Nuryanah, Cogent Baer, K., & Le Borgne, E. (2008). Tax amnesties: Theory,
Economics & Finance (2023), 11: 2229177. trends, and some alternatives. International
Monetary Fund.
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