Do Human Capacity Development and Company Performance affect Tax Avoidance? New Evidence from Manufacturing Sector Companies in Indonesia

Abstract

 This study aims to prove whether human capacity development and company performance affect tax avoidance in Indonesia. Tax avoidance is a crucial problem that has an impact on state revenues, including in Indonesia. Tax avoidance is influenced by many factors, one of which is humans as taxpayers with tax obligations. However, we investigate that not many researchers have investigated the effect of human capacity development on tax avoidance empirically. To investigate this, we try to observe financial data and disclosure of human capacity development in the annual reports of companies in the manufacturing subsector on the Indonesia Stock Exchange. Political cost theory, political power theory, and agency theory are the theoretical framework for this research. Using the purposive sampling method, our research uses a population of manufacturing companies with 210 populations in the 2005-2021 observation period. The analytical method used in this research is Partial Least Square-Structural Equation Modeling. This method was chosen to use more than one endogenous variable in a research model. Our findings show that the disclosure of human capacity development in companies and company performance can directly affect tax avoidance. However, our findings suggest that disclosure of human capacity development through moderating corporate performance does not affect tax avoidance. These results are significant for research on tax avoidance in Indonesia. This research can serve as an additional framework for developing tax avoidance research that is measured quantitatively through existing proxies.