The Effect of Sales Growth, Company Size, and Leverage on Tax Avoidance
DOI:
https://doi.org/10.54518/ebh.5.5.2026.1724Keywords:
Company Size, Effective Tax Rate, Leverage, Random Effect Model, Sales Growth, Tax AvoidanceAbstract
Low tax revenue ratios and large corporate tax losses highlight persistent tax avoidance in Indonesia’s manufacturing sector. This study examines the empirical effects of sales growth, company size, and leverage on tax avoidance, proxied by the Effective Tax Rate (ETR). Using a quantitative panel data regression approach, the sample comprises 50 manufacturing firms listed on the Indonesia Stock Exchange (IDX) from 2021 to 2025, yielding 250 firm-year observations. Data were analysed in EViews 13 using the Random Effects Model (REM), confirmed by Chow, Hausman, and Lagrange Multiplier tests. These variables significantly affect tax avoidance. Individually, sales growth has a significant negative effect on ETR, indicating that higher sales growth increases tax avoidance as expanding firms maximise deductible expenses. Leverage has a positive and significant effect on ETR, suggesting that debt financing provides interest tax shields, reducing reliance on aggressive tax sheltering while complying with thin capitalisation regulations. In contrast, company size has no significant effect on tax avoidance because political scrutiny of countervailing costs offsets its impact. The practical implication is that corporate management should handle debt structures prudently to avoid fiscal corrections, and tax authorities should focus risk-based monitoring efforts on high-growth firms.
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