Debt and Asset Structure Shape Tax Avoidance in Indonesia’s Energy Companies, Study Finds
Tax avoidance practices among Indonesian energy companies are influenced more by debt levels and asset composition than by profitability, according to new research published in 2026 by Suci Mulyani, Enggar Diah Puspa Arum, Ilham Wahyudi, and Wiralestari from Universitas Jambi. Examining companies listed on the Indonesia Stock Exchange between 2020 and 2024, the researchers found that leverage and capital intensity significantly affect corporate tax behavior, while profitability alone does not. The findings are important because Indonesia relies heavily on tax revenue to finance infrastructure, public services, and long-term economic development.
As governments around the world seek to strengthen tax compliance and prevent erosion of public revenue, corporate tax planning has become an increasingly important policy issue. Indonesia’s energy sector is particularly relevant because it involves substantial investments in fixed assets, complex financing arrangements, and large-scale operations that can influence how companies manage their tax obligations. Understanding the financial factors associated with tax avoidance may help regulators design more targeted oversight while assisting businesses in balancing financial efficiency with regulatory compliance.
The research conducted by the Universitas Jambi team focused exclusively on energy sector companies listed on the Indonesia Stock Exchange over the 2020–2024 period. Using audited financial statements and other publicly available corporate reports, the researchers selected 35 companies that met predefined sampling criteria, producing a total of 175 observations. The study employed a quantitative research design and analyzed the data using multiple linear regression to examine how profitability, leverage, and capital intensity relate to tax avoidance behavior.
Tax avoidance in the study was measured using the Cash Effective Tax Rate (CETR), where lower effective tax payments relative to pre-tax income indicate stronger tax avoidance behavior. Profitability was represented by Return on Assets (ROA), leverage by the Debt-to-Equity Ratio (DER), and capital intensity by the proportion of fixed assets relative to total assets.
The analysis produced several noteworthy findings:
- Profitability showed no statistically significant relationship with tax avoidance. Companies generating higher returns on assets were not necessarily more likely to engage in tax avoidance strategies.
- Leverage had a positive and statistically significant effect on tax avoidance. Firms relying more heavily on debt financing tended to display stronger tax avoidance behavior, consistent with the tax advantages associated with deductible interest expenses.
- Capital intensity demonstrated a significant negative relationship with tax avoidance. Companies with larger proportions of fixed assets appeared less likely to engage in tax avoidance practices than initially expected.
- Taken together, profitability, leverage, and capital intensity significantly explained variations in tax avoidance behavior, accounting for approximately 46.1% of the observed variation across the sampled firms.
One particularly interesting result is the absence of a meaningful relationship between profitability and tax avoidance. Conventional thinking often assumes that highly profitable firms have greater incentives to reduce tax liabilities. However, the findings suggest that companies operating in Indonesia’s energy sector may place greater emphasis on regulatory compliance, corporate reputation, and long-term operational stability than on aggressive tax planning, even when profits increase.
The positive association between leverage and tax avoidance aligns with established financial theory. Debt financing creates interest expenses that reduce taxable income, providing companies with legitimate opportunities to lower their tax burdens. Firms carrying larger debt obligations may therefore have stronger incentives to optimize tax outcomes through available legal mechanisms.
By contrast, the negative relationship between capital intensity and tax avoidance challenges some previous expectations. Although investments in fixed assets generate depreciation expenses that can reduce taxable income, companies with substantial infrastructure investments may also face closer regulatory scrutiny and greater public visibility. The study suggests that these firms may adopt more conservative tax practices rather than pursuing aggressive tax-saving strategies.
The researchers also emphasize that tax avoidance cannot be explained by a single financial indicator. Instead, management decisions emerge from the interaction of profitability, financing structures, and asset composition. Corporate tax planning should therefore be viewed as part of broader financial management rather than as an isolated accounting decision.
For policymakers, the findings indicate that monitoring highly leveraged firms may be particularly valuable when strengthening tax administration and compliance efforts. For investors and analysts, understanding a company’s capital structure and asset profile may provide additional context when evaluating financial reporting and tax strategies. Businesses themselves may benefit from recognizing how financing decisions influence both tax outcomes and regulatory attention.
An ethical paraphrase of the authors’ conclusions is that the Universitas Jambi research team argues tax avoidance among Indonesian energy companies is primarily shaped by financial structure—especially leverage and capital intensity—rather than profitability alone, highlighting the importance of considering multiple corporate characteristics simultaneously when evaluating tax behavior.
Author Profiles
Suci Mulyani is a researcher affiliated with Universitas Jambi whose work focuses on accounting, taxation, and corporate financial analysis.
Enggar Diah Puspa Arum is an academic at Universitas Jambi with expertise in accounting and financial management research.
Ilham Wahyudi is a researcher from Universitas Jambi specializing in business, finance, and accounting studies.
Wiralestari is an academic at Universitas Jambi whose scholarly interests include accounting, taxation, and corporate governance.
Source
Article Title: The Influence of Profitability, Leverage, and Capital Intensity on Tax Avoidance in Energy Sector Companies Listed on the Indonesia Stock Exchange for the 2020–2024 Period
Journal: International Journal of Applied Economics, Accounting and Management (IJAEAM)
Publication Year: 2026
Authors: Suci Mulyani, Enggar Diah Puspa Arum, Ilham Wahyudi, and Wiralestari (Universitas Jambi)
DOI / Official URL: https://doi.org/10.59890/ijaeam.v4i3.174
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