The Effect of Profitability and Leverage on Tax Avoidance with Corporate Social Responsibility as a Moderation Variable

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FORMOSA NEWS - Cirebon - UGJ Research Exposes Dark Side of CSR in Energy Sector: A Strategic Shield for Tax Avoidance. A groundbreaking study published in 2026 has revealed a startling paradox in how corporate social initiatives interact with fiscal responsibilities within Indonesia's energy sector. Three researchers from Universitas Swadaya Gunung Jati (UGJ) Yoga Aditya, Moh Yudi Mahadianto, and Mardi analyzed the financial behaviors and sustainability disclosures of energy companies listed on the Indonesia Stock Exchange (IDX) from 2021 to 2024. The critical investigation demonstrates that extensive Corporate Social Responsibility (CSR) programs are frequently not driven by pure social altruism. Instead, these green initiatives serve as a strategic "reputational shield" used by highly profitable and heavily indebted energy corporations to mask aggressive, underlying tax avoidance strategies. This insight challenges the conventional understanding of corporate citizenship in developing economies.

The Tug-of-War Between State Revenue and Corporate Profit
Tax revenues serve as the financial backbone of Indonesia's national development, accounting for more than 75 percent of the state budget over recent years. However, a natural conflict of interest exists between corporate taxpayers and the state; businesses inherently view taxes as an operational cost that erodes net profits, whereas the government requires these funds to finance public infrastructure and social welfare. To bridge this gap to their advantage, many companies engage in tax avoidance a legal yet aggressive practice of exploiting regulatory loopholes to minimize tax liabilities. The Indonesian energy sector has historically been vulnerable to such maneuvers. The UGJ research highlights past high-profile sector anomalies, such as the transfer pricing investigations involving major coal exporters that shifting profits to low-tax jurisdictions, costing the state millions of dollars in unrealized revenue. This ongoing economic tension prompted the UGJ research team to investigate whether modern CSR disclosures are being used to soften corporate scrutiny while companies aggressively lower their tax burdens.

Simplified Research Methodology
To uncover these corporate patterns, Yoga Aditya, Moh Yudi Mahadianto, and Mardi deployed a rigorous quantitative research design. The academic study simplified complex financial interactions by examining specific, standardized corporate metrics:

• Research Sample: The team filtered a total population of 91 listed energy companies down to 36 highly consistent corporate observations that continuously published audited financial statements and verified sustainability reports between 2021 and 2024.
  
• Core Metrics: Tax avoidance was evaluated via the Effective Tax Rate (ETR), where an ETR substantially lower than Indonesia's standard 22% corporate tax rate indicates aggressive tax planning. Corporate profitability was measured via Return on Assets (ROA), while debt dependence (leverage) was tracked through the Debt to Assets Ratio (DAR).
  
• Analytical Approach: The researchers processed the historical data using panel data regression modeling with the specialized EViews 12 SV software package to map direct relationships and hidden moderating effects.
  

Four Key Findings from the UGJ Study
The statistical analysis performed by the Universitas Swadaya Gunung Jati researchers yielded four crucial insights regarding corporate behavior:

• Profitability Alone Drives Tax Compliance: When analyzed independently of social factors, higher corporate profitability leads to a higher ETR. This indicates that highly profitable energy companies, in isolation, tend to comply with tax laws and bear their fair share of the national tax burden.
  
• Debt Levels Hold No Direct Influence: A company's independent debt structure (leverage) has a negative but statistically insignificant effect on its tax behavior. Simply having high debt does not automatically cause an energy company to alter its direct tax payments.
  
• CSR Transforms High Profits into Tax Shields: When CSR is introduced as a modulating factor, the dynamic flips dramatically. For highly profitable companies with extensive CSR disclosures, an increase in profit actually triggers a significant drop in their ETR. This confirms that corporations exploit CSR spending to reduce their taxable income legally under Indonesian law.
  
• Leveraged Firms Use CSR to Deflect Public Scrutiny: The interaction between leverage and CSR showed a significant negative impact on ETR. For energy companies carrying heavy debt burdens, intense CSR reporting heavily correlates with increased tax avoidance. These companies use visible social projects to secure public legitimacy and appease lenders while quietly shrinking their tax contributions.
  

Real-World Impact and Policy Implications

The findings generated by Yoga Aditya, Moh Yudi Mahadianto, and Mardi carry profound implications for state auditors, financial regulators, and the Directorate General of Taxes (DJP) in Indonesia. Current tax regulations allow certain CSR expenses to be claimed as deductions to encourage community development. However, this study proves that without aggressive oversight, these provisions become systematic tools for corporate tax minimization. For the business community, this research serves as an ethical wake-up call. True corporate sustainability requires a substantive commitment to both local environmental development and honest fiscal contributions to the nation, rather than treating social responsibility as a mathematical trade-off against tax obligations.

Author Profiles
Yoga Aditya, S.Ak. is a principal researcher and alumnus of the Accounting Department at Universitas Swadaya Gunung Jati (UGJ), specializing in corporate taxation, fiscal compliance, and financial auditing.
Dr. Moh Yudi Mahadianto, S.E., M.M. is a senior lecturer and academic researcher within the Faculty of Economics and Business at UGJ, with expertise in corporate governance, financial management, and tax compliance systems.
Dr. Mardi, S.E., M.Si. is an expert in accounting methodologies and corporate social responsibility tracking at UGJ, focusing his research on corporate management strategies and sustainability accounting.

Source
Yoga Aditya, Moh Yudi Mahadianto, Mardi: The Effect of Profitability and Leverage on Tax Avoidance with Corporate Social Responsibility as a Moderation Variable. Asian Journal of Management Analytics (AJMA), Vol. 5, No. 3, 2026, pp. 463-478
DOI: https://doi.org/10.55927/ajma.v5i3.16561
URL: https://journal.formosapublisher.org/index.php/ajma