Determinants of Tax Avoidance in Indonesian Food and Beverage Companies: A Political Cost Perspective 3 6

Abstract

Indonesia collects one of the lowest shares of tax revenue relative to output in the Asia-Pacific region, and corporate tax avoidance is widely regarded as part of the explanation. Earlier studies of profitability, leverage, sales growth, and firm size as drivers of tax avoidance have produced conflicting results, partly because they pool sectors that face very different levels of public scrutiny. This study examined these four determinants in the food and beverage sub-sector, a highly visible consumer industry, and used the competing political cost and political power views of firm size to interpret the evidence. The study was quantitative and used secondary data from the annual reports of thirteen food and beverage companies listed on the Indonesia Stock Exchange from 2019 to 2023, a period that spanned the reduction of the statutory corporate income tax rate. Purposive sampling yielded an unbalanced panel of sixty-two firm-year observations. Tax avoidance was measured by the cash effective tax rate, and the hypotheses were tested with pooled multiple linear regression after classical assumption tests. Sales growth had a significant negative effect on the cash effective tax rate, which means that faster-growing firms avoided more tax. Firm size had a significant positive effect on the cash effective tax rate, which indicates that larger firms avoided less tax, in line with the political cost hypothesis. Profitability and leverage had no significant effect. Together, the four variables explained about twenty-six percent of the variation in tax avoidance. The study contributes sector-specific evidence that visibility restrains tax avoidance by large firms, while growth pressure encourages it, and it suggests that tax authorities should direct compliance monitoring towards fast-growing, mid-sized firms rather than relying on size alone.