Profitability Does Not Guarantee Tax Avoidance Practices Among Property Companies in Indonesia

Illustration by AI

FORMOSA NEWS

Recent research indicates that a company's profitability is not a primary determinant of tax avoidance practices within the property and real estate sector on the Indonesia Stock Exchange (IDX) for the 2020–2024 period. The study, conducted by Reny Ernitasari, Wiralestari, Ilham Wahyudi, and Enggar Diah Puspa Arum from the Universitas Jambi, reveals that a company's ability to generate profit does not significantly influence its efforts to minimize tax liabilities.

In the business world, taxes are often perceived as a financial burden that reduces profits, creating an incentive for management to engage in tax planning or legal tax avoidance. The property and real estate sector in Indonesia was selected as the research focus due to its dynamic tax characteristics, including specific provisions regarding final income tax on the transfer of land and building rights.

The researchers analyzed financial data from 30 property and real estate firms listed on the IDX between 2020 and 2024, resulting in a total of 150 units of analysis. A simple linear regression analysis was employed to examine the relationship between profitability, measured by Return on Assets (ROA), and tax avoidance, measured by the Effective Tax Rate (ETR).

Key findings of the research include the following:

• Profitability (ROA) does not have a statistically significant contribution to tax avoidance practices (ETR).
• Profitability only accounts for 0.2% of the variation in tax avoidance, while the remaining 99.8% is influenced by factors outside the research model.
• There is no strong evidence suggesting that more profitable companies in this sector are more aggressive in avoiding taxes.

The absence of a significant effect is likely attributed to several factors, including the specific final tax regulations applied to the property and real estate sector, as well as the influence of government tax incentives provided during the post-COVID-19 pandemic period. Furthermore, effective oversight mechanisms by shareholders and regulators may lead management to be more cautious in making tax-related decisions to avoid reputational and audit risks.

These findings have important implications for regulators and tax authorities, who are advised to increase oversight of financial and tax reporting practices within the real estate sector. For companies, these results serve as a reminder to consider various non-financial factors—such as firm size, capital intensity, and corporate governance—when managing tax obligations, rather than focusing solely on profit levels.

Author Profile

Reny Ernitasari, Wiralestari, Ilham Wahyudi, and Enggar Diah Puspa Arum are academics from the Universitas Jambi, Indonesia. The research team specializes in accounting, corporate finance, and tax governance.

Research Source: Ernitasari, R., Wiralestari, Wahyudi, I., & Arum, E. D. P. (2026). The Effect of Profitability on Tax Avoidance Among Property & Real Estate Companies on the Idx Period 2020-2024. International Journal of Education and Life Sciences (IJELS), Vol. 4 No. 6. DOI: https://doi.org/10.59890/ijels.v4i6.27.