A state has various sources of revenue, and taxation is one of them. Tax is the largest contributor to state revenue. It is proven by the growth of state revenue realization in 2015-2019 in the Department of Finance, which declared that the largest state revenue is tax. However, the taxpayers and the government have different interests. As we all know, Taxpayers consider taxes as a burden that can reduce their profits, while the government considers taxes as the main source to finance state expenditures.
The conflict of interest encourages corporates to make all efforts to reduce their tax burden. It causes tax non-compliance among the corporate management. To cut down the costs, corporates tend to commit aggressive tax planning. Academics and practitioners argue that tax aggressiveness is considered unethical and illegal. Corporates who commit aggressive tax the community. CSR disclosure is a form of planning that is labeled to be socially irresponsible. To avoid this perception, the company strives to carry out Corporate Social Responsibility (CSR) to show the company’s commitment to corporate interaction with the community. Corporates who can meet the community’s expectations are considered successful and vice versa. If the community’s expectations of the community cannot be met, it can cause negative responses and the corporates will be considered a failure. The corporate’s tax aggressiveness also depends on the CSR because a well-executed CSR will spare them from tax aggressiveness as it damages the corporate’s image.
Logically, CSR activities will reduce the corporate tax aggressiveness. As CSR disclosure in the annual report provides information for the public that other than seeking profit, corporate is also have environmental responsibility and fulfill the community’s expectations. Furthermore, one of the affecting factors of tax aggressiveness is CSR. Due to the corporate capital intensity, tax aggressiveness may change. Capital intensity is the amount a corporation invests in the forms of inventories and fixed assets. The level of efficiency of a corporate in using its assets to generate sales can be shown by the capital intensity ratio.
To answer the problem, Laksmi & Narsa (2022) examined the relations between CSR and tax aggressiveness with capital intensity as the moderating variables. This study took 384 samples from manufacturing companies. Descriptive statistics were used to process the data using multiple linear regression analysis and moderated regression analysis to test the moderating variables. The result shows that CSR disclosure maintains negative relations with tax aggressiveness. This is proven by the greater the company’s CSR disclosure, the lower the tax aggressiveness. The second hypothesis testing shows the results that capital intensity can moderate by diminishing the relations between CSR and tax aggressiveness. In other words, the larger the capital intensity, the more encouraged the corporate to avoid the tax aggressiveness though the corporate had done effective CSR. This is because corporates whose fixed assets are getting bigger will grow the depreciation expense of their assets even bigger, so this may affect the company’s tax burden arising from the depreciation expense. The corporate did utilize the fixed asset to reduce the tax, but the corporate still bought the fixed asset to run the CSR programs.
The research aims to improve the history of study literature regarding tax aggressiveness and CSR. For the tax authorities, it is advisable to be more assertive to taxpayers in providing their financial reports and consider the CSR disclosure structure as a related factor to tax aggressiveness to optimize the State tax revenue. As for companies, we look forward to optimizing activities related to CSR disclosure to maintain the company’s image by not engaging in tax aggressiveness.
Author: Niluh Putu Dian Rosalina Handayani Narsa, S.A., M.Sc.
