The Effect of the Effective Corporate Tax Rate Toward Investment Decision in Indonesian Public Company
Keywords:effective corporate tax rate, Investment, public company
This research aimed to determine the effect of the effective tax rate in public company investment in Indonesia.
The research was conducted using firm data during 2008-2020 and considered the long-term investment concept. Meanwhile, the cross-section of 672 companies and the ordinary least square technique were used to get the estimation.
The estimation result showed that the effective tax rate has significant negative effect on fixed asset investment. If effective tax rate decrease, it can be because the company gets tax rate reduction incentives, conduct accelerated depreciation, fiscal reconciliation on the financial statement which can increase fixed asset investments. Moreover, the estimation also showed that the age of the company is able to strengthen the relationship between effective tax rate and company investment. The difference in domestic and foreign companies does not affect the elasticity ETR toward investment.
Research limitations/implications Based on the estimation result mentioned, it is expected to provide guidance in implementing incentive tax, which can encourage public company investment.
There are many studies on the effect of income tax rates, but the results cannot be used specifically in Indonesia since the tax sensitivity may be different based on the development level of the country and the characteristics of the company.
Abel, A. ., & Blanchard, O. . (1986). The present value of profits and cyclical movements in investment. Econometrica, 54, 249–273.
Cevik, S., & Miryugin, F. (2018). Does Taxation Stifle Corporate Investment? Firm-Level Evidence from ASEAN Countries. Australian Economic Review, 51(3), 351–367. https://doi.org/10.1111/1467-8462.12267
Chatib Basri, M., Felix, M., Hanna, R., & Olken, B. A. (2019). Tax Administration vs. Tax Rates: Evidence from Corporate Taxation in Indonesia. Ssrn. https://doi.org/10.3386/w26150
Dartanto, T. (2012). The 2008 corporate income tax reform and its contribution to poverty reduction in Indonesia. Working Papers in Economics and Business, II(3), 6–7. http://ideas.repec.org/p/lpe/wpecbs/201203.html
Devereux, M. P., Liu, L., & Loretz, S. (2014). The elasticity of corporate taxable income: New evidence from UK tax records. American Economic Journal: Economic Policy, 6(2), 19–53. https://doi.org/10.1257/pol.6.2.19
Djankov, S., Ganser, T., McLiesh, C., Ramalho, R., & Shleifer, A. (2010). The effect of corporate taxes on investment and entrepreneurship. American Economic Journal: Macroeconomics, 2(3), 31–64. https://doi.org/10.1257/mac.2.3.31
Dobbins, L., & Jacob, M. (2016). Do corporate tax cuts increase investments? Accounting and Business Research, 46(7), 731–759. https://doi.org/10.1080/00014788.2016.1192985
Ermansyah, H. (2018). Pengaruh Pajak Penghasilan (PPh) Badan Terhadap Permintaan Tenaga Kerja Pada Perusahaan Manufaktur Sebelum dan Sesudah UU No.36 Tahun 2008. In Universitas Indonesia (Issue Juli). Universitas Indonesia.
Fan, Z., & Liu, Y. (2020). Tax Compliance and Investment Incentives: Firm Responses to Accelerated Depreciation in China. Journal of Economic Behavior and Organization, 176, 1–17. https://doi.org/10.1016/j.jebo.2020.04.024
Federici, D., & Parisi, V. (2015). Do corporate taxes reduce investments? Evidence from Italian firm-level panel data. Cogent Economics & Finance, 3: 1012435.
Gravelle, J. G. (2014). International corporate tax rate comparisons and policy implications. Congressional Research Service, 51–89.
Gruber, J. (2016). Public Finance and Public Policy. In fifth addition (5th ed., pp. 752–754). Worth Publishers.
Harju, J., Koivisto, A., & Matikka, T. (2022). The Effects of Corporate Taxes on Small Firms. SSRN Electronic Journal, 212, 104704. https://doi.org/10.2139/ssrn.4041134
Mohammad, R., Helmi Zus Rizal, & Gede Satria Pujanggo, PG. (2021). Efek Insentif Perpajakan Berdasarkan Dasar Pengenaan Pajak Dan Tarif Pajak Terhadap Ekonomi Secara Makro : Studi Kasus Indonesia. Scientax, 2(2), 179–198. https://doi.org/10.52869/st.v2i2.91
Mustika, R., Ananto, R. P., & Handayani, D. (2018). Analisis Tarif Pajak Efektif di Indonesia. Jurnal Akuntansi, Keuangan Dan Bisnis, 11(2), 1–8. http://jurnal.pcr.ac.id
Muthitacharoen, A. (2021). Tax rate cut and firm investment: Evidence from Thailand. Apllied Economics Letters, 28(3), 1–8.
Nicholson, W., & Snyder, C. (2011). Microeconomics Theory Basic Principles and Extensions Eleventh Edition. South-Western.
Nuritomo, & Martani, D. (2014). Insentif Pajak, Kepemilikan, dan Penghindaran Pajak Perusahaan: Studi Penerapan Peraturan Pemerintah No 81 Tahun 2007. Simposium Nasional Akuntansi 17.
Pamungkas, H. (2012). UNTUK PERUSAHAAN TERBUKA Fasilitas Pajak Pasal 17 ayat ( 2b ) Kebijakan Dasar Penanaman Modal. Binus Business Review, 3(9), 1–14.
Sankarganesh, K., & Shanmugam, K. R. (2021). Effect of corporate income tax on investment decisions of Indian manufacturing firms. Journal of the Asia Pacific Economy, 0(0), 1–20. https://doi.org/10.1080/13547860.2021.1873896
Stiglitz, J. E., & Rosengard, J. K. (2015). Economics of The Public Sector (fourth edi). W. W. Norton & Company.
Sujarwati, A. I., & Qibthiyyah, R. M. (2020). Corporate Income Tax Rate and Foreign Direct Investment. Economic and Finance in Indonesia, 66(1), 25–46.
Teapriangga, A. (2020). Tren Perkembangan Rasio Pajak di Negara-negara ASEAN. DDTC News. https://news.ddtc.co.id/tren-perkembangan-rasio-pajak-di-negara-negara-asean-20194?page_y=416
Wooldridge, J. M. (2016). Introductory econometrics. In Introductory Econometrics (sixth edit). Cengage Learning. https://doi.org/10.1007/9783319659169
Zwick, E., & Mahon, J. (2017). Tax policy and heterogeneous investment behavior. American Economic Review, 107(1), 217–248. https://doi.org/10.1257/aer.20140855
Copyright (c) 2023 Journal of Indonesian Applied Economics
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.