The Effect of Profitability, Leverage, and Transfer Pricing on Tax Avoidance, with Company Size as a Moderating Variable (For Food and Beverage Companies on the IDX, 2020–2024)

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Jakarta— High Profits Drive Tax Avoidance in Food and Beverage Companies Listed on the Indonesia Stock Exchange. The research conducted by Lalu Patriawan Alwih and Ronny Andesto from the Master’s Program in Accounting, Faculty of Economics and Business, Universitas Mercu Buana, and published in January 2026 in the International Journal of Business and Applied Economics.

The research conducted by Lalu Patriawan Alwih and Ronny Andesto found that the level of company profitability is the main factor driving tax avoidance practices in Indonesia’s food and beverage sector. This study emphasizes that in the food and beverage sector, the size of profits is the main factor driving tax avoidance strategies. Amid efforts to strengthen state revenue, these findings serve as a reminder that performance-based financial supervision needs to be continuously improved so that the tax system can operate more fairly and sustainably.

This research provides a new perspective on the tax behavior of public companies amid government efforts to increase state revenue. At a time when taxes are the backbone of the national budget, corporate tax avoidance practices have the potential to reduce the country’s fiscal capacity.

Taxes as the Backbone of State Revenue

In Indonesia, more than 75 percent of government revenue comes from taxes. Data from the Central Statistics Agency show that between 2021 and 2023, tax revenue consistently dominated national income.

This situation makes economic development highly dependent on taxpayer compliance, especially from corporations. However, government efforts to maximize tax revenue often conflict with corporate interests. While the state seeks higher revenue, companies aim to minimize costs, including taxes.

In this context, tax avoidance has become a common practice. Tax avoidance refers to legal strategies used by companies to reduce tax obligations by exploiting regulatory loopholes. Although these practices do not violate the law, they are controversial because they reduce potential public revenue.

According to the Tax Justice Network, Indonesia loses around IDR 68.7 trillion annually due to tax avoidance, most of which comes from corporate activities. This makes tax compliance a critical issue in national economic policy.

The food and beverage sector was selected for this study because it shows stable sales growth and strong profitability, leading to relatively high tax obligations.

Research Method: Analyzing 70 Companies Over Five Years

The study used a quantitative approach by examining financial reports from 70 primary consumer sector companies, mainly food and beverage firms, listed on the Indonesia Stock Exchange between 2020 and 2024.

Only companies that consistently generated profits and published complete financial reports during the five-year period were included. Data were obtained from the official IDX website and company reports.

The researchers analyzed four main variables:

• Profitability
• Leverage
• Transfer pricing
• Company size

Profitability reflects a company’s ability to generate profits, leverage indicates the level of debt usage, transfer pricing refers to transactions with affiliated parties, and company size represents total assets.

The analysis employed Moderating Regression Analysis (MRA) to examine both direct effects and the moderating role of company size. Several statistical tests were conducted to ensure data reliability and model accuracy.

Key Findings: Profitability Is the Main Driver

The results show that not all variables influence tax avoidance. Among the four factors tested, only profitability had a significant effect.

1. Profitability Increases Tax Avoidance

The study found that companies with higher profits are more likely to engage in tax avoidance. As profits rise, tax liabilities also increase, encouraging management to seek ways to reduce tax payments.

Since corporate income tax is calculated based on profit, companies with strong financial performance face greater pressure to manage tax expenses. This creates incentives to adopt tax planning strategies.

However, the researchers also noted that highly profitable firms tend to be cautious, as aggressive tax practices may damage reputation and lead to regulatory sanctions.

2. Leverage Has No Significant Effect

Leverage, or the level of corporate debt, does not significantly affect tax avoidance in this sector. Although interest expenses can reduce taxable income, most food and beverage companies maintain moderate debt levels.

Government regulations limiting debt-to-equity ratios also discourage firms from using excessive debt as a tax strategy.

3. Transfer Pricing Is Not a Determining Factor

The study shows that transfer pricing does not significantly influence tax avoidance. This is largely attributed to stricter government supervision and documentation requirements for related-party transactions.

In addition, most companies in the sample operate mainly in domestic markets, limiting their ability to use cross-border transfer pricing schemes.

4. Company Size Does Not Strengthen Other Effects

Company size does not strengthen or weaken the relationship between profitability, leverage, transfer pricing, and tax avoidance. Both large and small firms show similar tendencies in managing tax obligations.

This indicates that corporate scale alone does not determine tax avoidance behavior in this industry.

Implications for Policy and Business

These findings offer important insights for policymakers, tax authorities, and business leaders.

For the government, the study highlights the need to strengthen supervision of highly profitable companies, as they are more likely to engage in tax avoidance.

For tax authorities, the results support the development of risk-based monitoring systems that focus on firms with strong profit performance.

For businesses, the study serves as a reminder that tax efficiency strategies must consider compliance, transparency, and long-term reputation.

The researchers emphasize that “companies with strong financial performance tend to prioritize compliance over aggressive tax practices that could harm their public image.”

Researchers’ Perspective

Lalu Patriawan Alwih and Ronny Andesto argue that existing regulations are relatively effective in limiting the use of debt and transfer pricing as tools for tax avoidance.

However, profitability remains the main challenge. As profits increase, pressure to manage tax expenses also rises.

They also acknowledge several limitations in the study, particularly the absence of other moderating variables such as corporate governance quality and industry characteristics.

Future research is encouraged to explore these factors in order to gain a deeper understanding of corporate tax behavior.

Author Profiles

Lalu Patriawan Alwih, S.E., M.Ak.  Universitas Mercu Buana.

Ronny Andesto, S.E., M.Ak., Ph.D. Universitas Mercu Buana.

Research Source

Alwih, Ronny.The Effect of Profitability, Leverage, and Transfer Pricing on Tax Avoidance, with Company Size as a Moderating Variable
International Journal of Business and Applied Economics (IJBAE)Volume 5, Nomor 1, 2026, Halaman 487–504
DOI:https://doi.org/10.55927/ijbae.v5i1.572                                                                                 URL: https://nblformosapublisher.org/index.php/ijbae