The Effect of Sales Growth, Profitability and Leverage on Tax Avoidance with Firm Size as Moderating Variable

Beliefs about the rationality of economic agents and the predominantly controlling nature of tax policy may lead to the opinion that companies a priori do not want to pay taxes and are interested in keeping most of the income for themselves. Numerous studies show that many factors influence the tax behavior of companies. This study analyzes the effect of sales growth, profitability, and leverage on tax avoidance with firm size as moderating variable. In this study, the researchers use an Effective Tax Rate (ETR), whereas previous studies used Cash Effective Tax Rate (CETR) as an indicator for measuring tax avoidance. The object of research is service companies in the infrastructure, utilities, and transportation sectors listed on Indonesia Stock Exchange from 2016 to 2020. Tax avoidance is represented by the Effective Tax Rate (ETR) and is the dependent variable. Sales growth is calculated by comparing current sales with previous years' sales. Profitability is measured as Return on Assets (ROA). Leverage is measured as Debt-to-Equity Ratio (DER). Firm size (SIZE) is measured by the natural logarithm of total assets and is moderating variable. This study uses quantitative secondary data from the financial reports of service companies in the infrastructure, utilities, and transportation sectors listed on the Indonesian Stock Exchange for 2016-2020. Company reports are downloaded from https://idx.co.id/ or the official company website. The data were analyzed using descriptive statistics and Partial Least Square (PLS) method. This study contributes to the literature by giving a deeper understanding of factors affecting tax avoidance and showing that sales growth, profitability, and leverage affect the company's tendency to carry out tax avoidance. The results of this study will be helpful for tax authorities who carry out tax audits of service companies engaged in the infrastructure, utilities, and transportation sectors. The tax authorities should also pay attention to the firm size, which can influence a company to practice tax avoidance.