POLITICAL CONNECTIONS, STATE OWNED ENTERPRISES AND TAX AVOIDANCE : AN EVIDENCE FROM INDONESIA

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Abstract

This study investigated the relationship between political connections and tax avoidance behaviour in Indonesian listed-firms in 2007-2013 year period. Some firms created links to government for obtaining benefits in various variables such import licensing, taxes, and supply-funds. We have manually managed to identify politically connected-firms from the annual reports and measure tax avoidance by using Cash Effective Tax Rate (CETR) as the proxy. Our observation indicated that politically connected-firms paid lower corporate income tax than non-politically connected-firms. Our study also examined how the status of State Owned Enterprise (SOE) correlates to tax avoidance. Firms hiring politically connected independent commissioners (INDCOM) in this study were more likely to show tax avoidance behavior. However, we have no strong evidence to prove our proposition regarding the type of political connections.

Keywords: Political Connections; State Owned Enterprises; Tax Avoidance; Corporate Income Tax; Cash Effective Tax Rate

How to cite this paper: Sudibyo, Y.A., Jianfu, S.(2016). Political connections, state owned enterprises and tax avoidance: An evidence from Indonesia. Corporate Ownership & Control, 13(3-2), 279-283. https://doi.org/10.22495/cocv13i3c2p2