The Impact Of Thin Capitalization Rules On Tax Avoidance In Indonesia

Abstract

This study aimed to examine the impact of thin capitalization rules implementation on corporate tax avoidance in Indonesia. The study used a purposive sampling method from firms listed on the Indonesia Stock Exchange (IDX) from 2014 to 2017 and obtain 504 firm-year observations. The data was separated into two categories, high DER firms and low DER firms. Data analysis was conducted using regression models with difference in differences approach and Stata version 14. The result showed that thin capitalization rules significantly decreased tax avoidance both of high DER firms and low DER firms. This study extends previous researches on the impact of thin capitalization rules on tax avoidance. Using difference in difference approach with four years observations, two years before implementation and two years after implementation which is still rarely performed in Indonesia. The number of samples that represent the population become limitation of this study. It occurs since there are few companies listed on the IDX, and audited only by audit firm not according to the DGT.