The Effect of Profitability, Leverage, and Firm Size on Tax Avoidance: A Case Study of Manufacturing Companies Listed on the Indonesia Stock Exchange in 2020

Abstract

Tax avoidance is a significant concern because it can reduce state revenue, while companies attempt to optimize their tax burden through tax planning within the legal framework. This study aims to analyze the influence of profitability, leverage, and company size on tax avoidance in manufacturing companies listed on the Indonesia Stock Exchange from 2020 to 2023. This study uses a quantitative approach with a causal associative method. The study population includes all manufacturing companies listed on the Indonesia Stock Exchange, while a sample of 40 observations was selected using a purposive sampling technique. The research instruments consisted of annual report documentation and financial statements. Data analysis was conducted through descriptive statistics, classical assumption tests, multiple linear regression, t-tests, F-tests, and coefficients of determination. The results show that profitability, leverage, and company size have negative relationships with Cash Effective Tax Rate (CETR) as a proxy for tax avoidance, with significance values of 0.000, 0.000, and 0.004, respectively. The negative coefficients indicate that increases in these variables are associated with lower CETR, which according to the operational definition used in this study indicates a higher tendency toward tax avoidance. Simultaneously, the three variables significantly explain CETR, with an Adjusted R Square value of 0.501