Why Tax Avoidance Remains a Concern in Mining
Indonesia’s mining sector plays a major role in the national economy and contributes significantly to state revenue through taxes and royalties. However, the sector’s capital-intensive operations, complex business structures, long production cycles, and close interaction with government policies create challenges for tax oversight.
Mining companies operate within a regulatory environment involving licenses, production contracts, royalties, environmental requirements, and other government decisions. These conditions can create opportunities for companies to build relationships with political actors or public officials. Such connections may provide access to policymakers, regulatory information, or perceived protection from strict enforcement.
The researchers examined this issue through the lens of agency theory, which focuses on potential conflicts between company managers, shareholders, and the state. Managers generally possess more information about company operations than outside stakeholders. This information advantage can create room for opportunistic decisions, including aggressive tax planning.
The study also examined two behavioral factors: opportunity and ego. Opportunity reflects conditions that may allow misconduct to occur, such as weak oversight or regulatory loopholes. Ego, represented in the study by CEO duality, reflects the concentration of leadership authority when one individual holds two top positions in a company’s management structure.
How the Study Was Conducted
Supriatiningsih and her colleagues analyzed secondary data from mining companies listed on the Indonesia Stock Exchange. The initial population consisted of 58 publicly listed mining companies, while 46 companies met the study’s data requirements.
The final dataset covered 276 observations from 46 companies over six years, from 2018 to 2023. The researchers collected information from company annual reports and analyzed the data using panel-data regression with Stata 17.
The analysis compared different statistical models and ultimately used a random-effects model. The researchers tested whether opportunity and CEO ego were associated with tax avoidance and whether collusion, measured through political connections, changed those relationships.
Key Findings: Direct Effects Were Not Significant
The study produced a result that challenges the assumption that greater opportunity or stronger CEO dominance automatically leads to tax avoidance.
Opportunity did not have a statistically significant direct effect on tax avoidance. The coefficient was 5.619, but the probability value was 0.637.CEO ego, measured through CEO duality, also did not have a statistically significant direct effect on tax avoidance. The coefficient was 0.226, with a probability value of 0.995.
Collusion significantly moderated the relationship between opportunity and tax avoidance. The interaction had a negative coefficient of -0.837 and a significance level of 0.000.
Collusion also significantly strengthened the relationship between CEO ego and tax avoidance. The interaction was statistically significant at 0.000.
These results suggest that corporate governance and oversight mechanisms may be strong enough to limit the direct influence of managerial opportunity and CEO dominance. The presence of a powerful CEO, by itself, does not necessarily translate into aggressive tax strategies when internal controls, boards, and organizational procedures remain effective.
The researchers also found that collusion did not have a uniform effect. When collusion interacted with opportunity, the relationship with tax avoidance weakened. The study suggests that involving more actors can increase coordination difficulties, internal conflicts, and the risk that information will be exposed.
However, the situation changes when collusion reinforces concentrated leadership power. When a CEO with substantial authority operates in an environment where supervisory functions are weakened by collusive relationships, the risk of tax avoidance increases.
Why the Findings Matter for Corporate Governance
The research highlights an important distinction in understanding corporate tax risk. Tax avoidance may not be explained by one factor alone. Instead, the risk can arise from the interaction between leadership characteristics and the quality of internal oversight.
According to the authors’ analysis, CEO duality does not automatically produce tax avoidance because organizational structures, boards of commissioners, and collective decision-making can limit individual dominance. However, those safeguards become more vulnerable when collusion undermines the independence of supervision.
In practical terms, the study indicates that companies should focus not only on the formal structure of leadership but also on whether monitoring mechanisms genuinely operate independently. A governance system may appear complete on paper but become less effective if decision-makers and supervisors develop relationships that reduce accountability.
For regulators and policymakers, the findings support stronger tax supervision and more transparent corporate reporting. Integrated reporting systems can help reduce information asymmetry between companies and government authorities, making it more difficult for aggressive tax strategies to remain hidden.
The researchers recommend that mining companies strengthen internal controls and governance systems, particularly to prevent collusive arrangements that could create room for opportunistic management behavior. They also recommend that future research examine additional factors, including governance quality, tax audit intensity, and board characteristics, while expanding the analysis to other industries and longer periods.
Author Insight: The Risk Lies in the Interaction
The central insight from Supriatiningsih, Novarini, Hidayat Darwis, Pandaya, and Luckman Ibrahim is that tax avoidance risk is not determined solely by opportunity or individual managerial characteristics. Their findings indicate that the interaction between leadership ego and collusion can weaken monitoring mechanisms and increase the potential for decisions driven by personal or group interests.
In the authors’ analysis, the key governance challenge is therefore not simply whether a company has a powerful CEO or operates in a complex industry. The more important question is whether the company’s monitoring system remains independent and effective when power becomes concentrated and relationships among organizational actors become less transparent.
The study is limited to Indonesian mining companies and relies on secondary data from published corporate reports. The authors also acknowledge that the proxies used for opportunity, ego, and collusion may not fully capture the complex behavioral motivations behind corporate tax decisions.
Author Profile
Supriatiningsih — academic researcher in accounting, taxation, corporate governance, and financial reporting at Universitas Teknologi Muhammadiyah Jakarta.
Novarini — researcher affiliated with Universitas Teknologi Muhammadiyah Jakarta, contributing to research in business, accounting, and management.
Hidayat Darwis — researcher in accounting, corporate governance, fraud detection, and taxation at Universitas Teknologi Muhammadiyah Jakarta.
Pandaya — academic researcher affiliated with Universitas Teknologi Muhammadiyah Jakarta, with research interests in accounting, financial reporting, and corporate governance.
Luckman Ibrahim — researcher affiliated with Universitas Teknologi Muhammadiyah Jakarta, working in the field of economics, business, management, and accounting.
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