Political and Military Connection, Audit Delay, and Tax Avoidance: An Evidence in Indonesia

Abstract

Many political elites in Indonesia have strategic position in companies. Uniquely, in Indonesia,there are also military elites hold this position. On the contrary, the level of corruption in Indonesia is still very high, and the tax ratio is also low. Therefore, this study is conducted to determine and analyze the effect of political and military connection on tax avoidance in Indonesia. The research was conducted on mining companies listed on the IDX in 2017 – 2019, and the data were analyzed using SmartPLS. The results of this study indicate that political connection has an effect on tax avoidance through audit delay. Top management can intervene in the audit report process to get the expected result. So, the process takes longer time and it indicates the occurrence of tax avoidance efforts. Meanwhile, the military connected company has no effect, because the proportion is relatively small and they have characteristics to comply more with the rules in submitting audit reports. Ultimately, this study is expected to be a valid source of input in making regulations about tax collecting activities. Moreover, it can be taken into consideration in making decisions regarding the proportion of the top management who are connected politically and militarily.

Board characteristics and tax planning of quoted companies in Nigeria

“…For example, Rustiarini and Sudiartana (2021) found that political connections may foster nepotism practices aimed at reducing corporate tax burdens. Similarly, Sumual and Karundeng (2022) observed that board political connections influence the tax planning activities of firms.…”

“…Politically connected members are known for having political titles like Grand Commander of the Order of the Niger (GCON), Member of the Order of the Federal Republic (MFR), Officer of the Order of the Niger (OON), Ex-Governor, Ex-Commissioner, Justice of Peace (JP) and others that have connections with the government. Political connections boards are firms having political stalemates, political backgrounds and approaching politicians or the government (Sumual & Karundeng, 2022). Companies that have members of the government as directors or board members that have any political title or association with the government could have poor corporate governance which makes the company risky as perceived by auditors and lenders (Bliss & Gul, 2012).…”

“…Moreover, Rustiarini and Sudiartana (2021) stated that political relationships may encourage nepotism practices to reduce company tax costs. Similarly, Sumual and Karundeng (2022) identified the influence of political connections on firms' tax planning activities in Indonesia. Following the results of prior studies, we hypothesize that: H0: Board political connection has no significant and negative relationship with tax planning among listed firms in Nigeria.…”