TAX AVOIDANCE AND TAX RISK EFFECT TO COST OF DEBT FOR MANUFACTURING COMPANIES SURVIVING COVID-19 CRISIS – International Journal of Accounting Finance and Social Science Research (IJAFSSR)

Title: TAX AVOIDANCE AND TAX RISK EFFECT TO COST OF DEBT FOR MANUFACTURING COMPANIES SURVIVING COVID-19 CRISIS

Authors:
Irwanto Handojo and Novika Chandra

Abstract:
This study examines the impact of tax avoidance and tax risk on the cost of debt in manufacturing companies listed on the Indonesia Stock Exchange (IDX) from 2021 to 2023. Using multiple regression analysis, this research evaluates how corporate tax strategies and related risks affect lenders’ risk perceptions and the resulting cost of debt. The findings indicate that corporate tax avoidance practices create tax risk perceptions that increase the cost of debt. On the other hand, tax risk shows a positive effect on the cost of debt in the context of the COVID-19 impact, aligning with the influence of profitability. The instability of tax payments indicating low tax risk in this study can be interpreted as an effort to time tax avoidance appropriately, as tax avoidance in Indonesia actually increases tax risk for companies. Therefore, instability in tax payments due to tax avoidance only being carried out at opportune times provides a low-risk perception for creditors. Thus, the instability in company profitability due to the impact of COVID-19 is closely related to company risk when engaging in tax avoidance in tax reporting. In the context of the impact of COVID-19, the instability of tax payments due to profitability instability actually reflects reality. Therefore, the instability of tax payments provides a low tax risk perception also because tax avoidance is not carried out at COVID-19 impact times, and vice versa. Additionally, company size, profitability, foreign ownership, and institutional ownership are proven to reduce the cost of debt, while government ownership has no effect, and managerial ownership shows a positive effect on the cost of debt, indicating the perception of agency risk by lenders. These results emphasize the importance of conservative tax management, financial health, and corporate governance control structures in minimizing borrowing costs and enhancing the financial stability of companies.

Keywords: Cost of Debt, Tax Avoidance, Tax Risk, Firm Size, Profitability, Foreign Ownership, Institutional Ownership, Government Ownership, Managerial Ownership.

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