Tax avoidance in Indonesia: What is the role of corporate governance and financial distress?

This study examines the impact of corporate governance and financial distress on tax avoidance in Indonesian manufacturing companies from 2020 to 2022. Utilizing multiple linear regression analysis on a sample of firms listed on the Indonesia Stock Exchange, the research identifies institutional ownership as a significant factor negatively affecting tax avoidance, suggesting enhanced supervision by institutional investors. Conversely, financial distress is found to positively influence tax avoidance, indicating that financially strained companies may resort to such practices to alleviate their burdens. Other corporate governance factors, including managerial ownership, board size, independent commissioners, audit committee size, and audit quality, do not show significant effects on tax avoidance. The regression model accounts for only 5.8% of the variation in tax avoidance, highlighting the presence of other influential factors not captured in the study. These findings underscore the need for improved corporate governance and strengthened tax regulations to minimize tax avoidance practices.