THE EFFECTS OF CAPITAL STRUCTURE, PROFITABILITY, AND LEVERAGE ON TAX AVOIDANCE IN STATE-OWNED ENTERPRISES IN THE MANUFACTURING SECTOR

Abstract

This study aims to examine and analyze the effects of capital structure, profitability, and leverage on tax avoidance in state-owned enterprises (SOEs) in the manufacturing sector listed on the Indonesia Stock Exchange (IDX) for the 2018–2025 period. Capital structure is proxied by the Long-Term Debt to Equity Ratio (LTDTER), profitability by the Net Profit Margin (NPM), leverage by the Times Interest Earned Ratio (TIER), and tax avoidance by the Effective Tax Rate (ETR). The sampling method used was purposive sampling, resulting in 13 manufacturing SOEs that met the criteria as samples with an observation period of 8 years, yielding a total of 104 observations. Data analysis was conducted using panel data regression analysis with EViews 13 software. The estimation model chosen based on the Chow and Hausman tests was the Fixed Effect Model (FEM). The partial results of the study show that: (1) Capital structure (LTDTER) has a significant negative effect on ETR, meaning it has a significant positive effect on tax avoidance. This indicates that a higher proportion of long-term debt increases tax avoidance due to interest tax shields; (2) Profitability (NPM) has a significant positive effect on ETR, meaning it has a significant negative effect on tax avoidance. This indicates that highly profitable SOEs tend to demonstrate better tax compliance to maintain public reputation rather than executing aggressive tax avoidance; (3) Leverage (TIER) has no significant effect on ETR (tax avoidance), showing that the company's ability to cover interest expenses from operating profits does not directly determine its tax policies. Simultaneously (F-test), LTDTER, NPM, and TIER are feasible to explain tax avoidance with a determination coefficient (Adjusted R-squared) of 14.07%, while the remaining percentage is explained by other variables outside this research model.