Does the Political Connection Affect Corporate Tax Aggressiveness? The Moderating Role of Corporate Governance
Prinintha Nanda Soemarsono (a*) (b), Iman Harymawan (a)

a) Faculty of Economic and Business, Universitas Airlangga
Jalan Airlangga No.4, Surabaya 60286, Indonesia
*prinintha.nanda.soemarsono-2022[at]feb.unair.ac.id
b) Faculty of Vocational Studies, Universitas Airlangga
Jalan Dharmawangsa Dalam Selatan No.28 - 30, Surabaya 60286, Indonesia

Abstract

This study provides an overview of corporate tax aggressiveness as a form of exploiting company resources to control the company^s external situation through its political influence. In addition, this study provides evidence of how political connections influence firms^ high-risk decisions, such as tax planning policies. The research sample comprised companies listed on the Indonesia Stock Exchange during the period 2015 to 2021. The method used is Hierarchical Linear Regression on panel data using the estimated common effect model (CEM). The study results show that political connections owned by companies do not necessarily guarantee that companies are free from tax aggressiveness. The company still has the risk of being examined by the tax authorities and will be subject to sanctions if proven guilty. The good corporate governance system and the company^s political connections provide incentives for companies to be less aggressive towards taxes since corporate decision-making related to aggressive tax strategies is considered by investors to be a risky policy. This study provides new evidence in the context of aggressive tax planning by attempting to evaluate whether political connection companies could influence the tax aggressiveness activities that sanctions by the tax authorities in Indonesia.

Keywords: Financial Accounting, Political Connection, Tax Aggressiveness, Governance

Topic: Management accounting