Corporate Social Responsibility and Tax Aggressiveness: Evidence from Indonesia

Abstract

The purpose of this research is to examine the impact of tax aggressiveness on corporate social responsibility (CSR) and its reversal. It also finds out which one of those relationships with more considerable influence. The population of this research is manufacture companies listed on the Indonesian Stock Exchange over the period 2008-2019. This research used a purposive sampling method and found 67 companies. We test the multiple regressions using the generalized method of moments (GMM) to analyze the hypotheses. The results depict that CSR does not affect tax aggressiveness. However, tax aggressiveness has a significant effect to enhance CSR. Therefore, the relationship between CSR and tax aggressiveness is only one direction.

The Effect of Corporate Social Responsibility, Firm Size, and Leverage on Tax Aggressiveness: An Empirical Evidence

“…This causes profits not to decrease drastically, and taxes paid do not increase sharply. The results of this hypothesis test are in line with [36], [50], [49], and [13], that CSR has a negative effect is not significant on tax aggressiveness. These findings prove that claims to engage in CSR can hide many inconsistencies in a company's approach to CSR [51].…”

“…CSR is defined as the way businesses take into account the social and environmental impact of operating, maximizing benefits and minimizing losses [3]. CSR is the ongoing commitment of a business to behave ethically and contribute to economic development and improve the quality of life of its workforce as well as local communities and the wider community [35], in accordance with values and norms [36].…”

“…Paying a fair share of taxes is an important component of CSR that helps maintain a company's image and reputation. CSR can be used by companies to divert attention from unwanted tax planning activities [36]. Therefore, to increase the company's CSR activities, a reduction in tax aggressiveness is needed.…”

The Association between Corporate Social Responsibility and Tax Aggressiveness

“…Further, tax aggressiveness occurs because of the conflicting of interests between the government and the firm as taxpayers. The government aims to maximize tax revenue, but companies tend to reduce the tax burden to obtain large profits for the shareholders' wealth (Kristiadi et al, 2020). Moreover, Tax aggressiveness "enables companies to enjoy the benefits of corporate citizenship without accepting the costs" which are then transferred to other parties (Amidu et al, 2016).…”

“…Therefore, managers try to minimize the tax burden to support the cost of environmental improvement (Hadjoh and Sukartha, 2013;Sari and Prihandini, 2019). While Kristiadi et al (2020) support that the increase of CSR does not necessarily make lower corporate tax aggressiveness.…”