Covid-19 and corporate tax avoidance: Measuring long-run tax burdens as an alternative bailout test

Authors

  • Subagio Efendi Directorate General of Taxes, Ministry of Finance of Indonesia

DOI:

https://doi.org/10.31685/kek.v4i3.888

Keywords:

covid-19, tax avoidance measure, bailout test, long-run tax burdens, tax return, Post-Covid-19, covi

Abstract

This study fills the gap in the tax authority’s Covid-19 financial aid verifications by examining, and nominating, Long-run ETR (Dyreng et al., 2008) as the better corporate tax avoidance measure in excluding tax evader firms from the broad stimulus programs. Analysing confidential tax returns of 4,752 largest firms (32,120 firm-years) in Indonesia over 2009 to 2017 periods, this study found 18.12 percent of total sample firms is able to retain its Long-run ETR below 10 percent, which indicates continual tax avoidance activities by these firms during observation periods. Moreover, applying univariate and multivariate Ordinary Least Squares and Panel Data estimations, this study reveals, relative to other tax avoidance measures, Lagged Cash ETR (Lisowsky, 2010; Lisowsky et al., 2013) present the most consistent reliability in predicting long-run income tax burdens. Thus, this study asserts, in the conditions of computing Long-run ETR is costly and impractical (i.e. because of data unavailability), tax authority and policymakers can directly analyse firms’ Lagged Cash ETR to gauge their long-run income tax burdens and tax compliance behaviours prior the economic downturn. 

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Published

2021-07-07

Issue

Vol. 4 No. 3 (2020)

Section

Articles

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