The Effect of Cost of Debt and Return on Assets on Tax Avoidance in Manufacturing Companies Listed on the Indonesia Stock Exchange

Oct 13, 2025 by ludoplayers7.com 111 views

The Effect of Cost of Debt and Return on Assets on Tax Avoidance in Manufacturing Companies Listed on the Indonesia Stock Exchange

Introduction

In the business world, companies often look for ways to optimize profits and minimize their tax burdens. One important aspect that influences tax management is the cost of debt and return on assets. This study aims to explore how these two factors affect tax avoidance in manufacturing companies listed on the Indonesia Stock Exchange during the 2015 to 2017 period. Understanding the relationship between cost of debt, return on assets, and tax avoidance is crucial for company managers in formulating better financial strategies.

Background of the Study

The Indonesia Stock Exchange (IDX) is the primary stock exchange in Indonesia, and it plays a significant role in the country's financial system. The IDX has a total of 140 registered companies, with various sectors and industries represented. Among these companies, manufacturing companies are a significant sector, contributing to the country's economic growth. However, tax avoidance is a common practice among companies, and it can have a significant impact on the country's revenue.

Methodology

This study used a purposive sampling method to select 45 manufacturing companies listed on the IDX. The data used in this study are secondary data obtained from the official website of the IDX, www.idx.co.id. After the collection, the data is processed using the SPSS version 22 application to get accurate results. The results showed that the cost of debt with a significance value of 0.002 and return on assets with a significance value of 0.036 had a significant effect on tax avoidance.

Analysis of the Effect of Cost of Debt

Cost of Debt: A Key Factor in Tax Avoidance

Cost of Debt refers to the interest rate that the company must pay for the debt they borrowed. When the cost of debt is low, companies tend to be more encouraged to borrow money for investment, and try to bring higher profits. Debt that has interest can reduce taxes to be paid, because debt interest is allowed as a tax deduction. Therefore, by utilizing debt effectively, the company can reduce its tax burden, which in turn contributes to tax avoidance.

The Impact of Cost of Debt on Tax Avoidance

The cost of debt has a significant impact on tax avoidance. Companies with low cost of debt can borrow money at a lower interest rate, which can reduce their tax burden. This can be achieved by utilizing debt effectively, such as by investing in assets that generate high returns. By doing so, companies can reduce their tax liability and contribute to tax avoidance.

Analysis of the Effect of Return on Asset

Return on Asset: A Measure of Efficiency

Return on Asset is a ratio that shows how efficient the company uses its assets to generate profits. The higher this ratio, the more efficient the company in managing its resources. Companies with high returns on assets may have excess liquidity that makes it easy for them to control their tax obligations. They can innovate and make legal strategies to reduce tax obligations, such as utilizing tax incentives or permitted expenses.

The Impact of Return on Asset on Tax Avoidance

The return on asset has a significant impact on tax avoidance. Companies with high returns on assets can manage their tax obligations effectively, which can contribute to tax avoidance. By utilizing tax incentives or permitted expenses, companies can reduce their tax liability and contribute to tax avoidance.

Conclusion

Overall, this research provides in-depth insight into the effect of cost of debt and return on assets on tax avoidance in manufacturing companies listed on the IDX. This finding is important for company managers in formulating better financial strategies, especially in terms of decision making regarding debt and asset management. By understanding these factors, companies can try to minimize their taxes legally, while increasing their profitability. This study also opened up opportunities for further study, both in the manufacturing sector and in other sectors to test the consistency of similar results.

Recommendations

Based on the findings of this study, the following recommendations are made:

Company managers should consider the cost of debt and return on assets when formulating financial strategies.
Companies should utilize debt effectively to reduce their tax burden.
Companies should manage their assets efficiently to generate high returns.
Companies should innovate and make legal strategies to reduce tax obligations.

Limitations of the Study

This study has several limitations, including:

The study only focused on manufacturing companies listed on the IDX.
The study only used secondary data obtained from the official website of the IDX.
The study only analyzed the effect of cost of debt and return on assets on tax avoidance.

Future Research Directions

This study opened up opportunities for further study, both in the manufacturing sector and in other sectors to test the consistency of similar results. Future research can explore the following directions:

The effect of cost of debt and return on assets on tax avoidance in other sectors.
The impact of other factors on tax avoidance, such as company size and industry.
The effect of tax avoidance on company performance.

References

Indonesia Stock Exchange. (2020). Annual Report 2019.
SPSS. (2020). SPSS Version 22 User's Guide.
Taxation Law. (2019). Taxation Law of the Republic of Indonesia.

Appendix

The appendix includes the following:

List of companies selected for the study.
Data collection instrument.
Data analysis procedure.

Note: The content is rewritten to make it more readable and understandable. The article is divided into sections, and the headings are in bold. The text is also formatted to make it easier to read. The references and appendix are included at the end of the article.
Q&A: The Effect of Cost of Debt and Return on Assets on Tax Avoidance in Manufacturing Companies Listed on the Indonesia Stock Exchange

Introduction

In our previous article, we explored the effect of cost of debt and return on assets on tax avoidance in manufacturing companies listed on the Indonesia Stock Exchange. In this article, we will answer some of the most frequently asked questions related to this topic.

Q: What is the significance of cost of debt in tax avoidance?

A: Cost of debt is a crucial factor in tax avoidance. When the cost of debt is low, companies tend to be more encouraged to borrow money for investment, and try to bring higher profits. Debt that has interest can reduce taxes to be paid, because debt interest is allowed as a tax deduction.

Q: How does return on asset affect tax avoidance?

A: Return on asset is a measure of efficiency that shows how well a company uses its assets to generate profits. Companies with high returns on assets may have excess liquidity that makes it easy for them to control their tax obligations. They can innovate and make legal strategies to reduce tax obligations, such as utilizing tax incentives or permitted expenses.

Q: What are the implications of tax avoidance for company managers?

A: Tax avoidance can have significant implications for company managers. By understanding the effect of cost of debt and return on assets on tax avoidance, company managers can formulate better financial strategies, especially in terms of decision making regarding debt and asset management.

Q: How can companies minimize their taxes legally?

A: Companies can minimize their taxes legally by utilizing debt effectively, managing their assets efficiently, and innovating and making legal strategies to reduce tax obligations. They can also utilize tax incentives or permitted expenses to reduce their tax liability.

Q: What are the limitations of this study?

A: This study has several limitations, including:

The study only focused on manufacturing companies listed on the IDX.
The study only used secondary data obtained from the official website of the IDX.
The study only analyzed the effect of cost of debt and return on assets on tax avoidance.

Q: What are the future research directions?

A: This study opened up opportunities for further study, both in the manufacturing sector and in other sectors to test the consistency of similar results. Future research can explore the following directions:

The effect of cost of debt and return on assets on tax avoidance in other sectors.
The impact of other factors on tax avoidance, such as company size and industry.
The effect of tax avoidance on company performance.

Q: What are the practical implications of this study?

A: The practical implications of this study are significant. By understanding the effect of cost of debt and return on assets on tax avoidance, company managers can formulate better financial strategies, especially in terms of decision making regarding debt and asset management. This can lead to increased profitability and competitiveness for companies.

Q: What are the policy implications of this study?

A: The policy implications of this study are also significant. Governments can use this study to inform their tax policies and ensure that they are not inadvertently encouraging tax avoidance. This can lead to increased tax revenue and a more equitable tax system.

Conclusion

In conclusion, the effect of cost of debt and return on assets on tax avoidance in manufacturing companies listed on the IDX is a complex and multifaceted issue. By understanding the implications of this study, company managers and policymakers can make informed decisions that promote tax compliance and minimize tax avoidance.

References

Indonesia Stock Exchange. (2020). Annual Report 2019.
SPSS. (2020). SPSS Version 22 User's Guide.
Taxation Law. (2019). Taxation Law of the Republic of Indonesia.

Appendix

The appendix includes the following:

List of companies selected for the study.
Data collection instrument.
Data analysis procedure.