The Impact of Thin Capitalization and Profitability on Tax Avoidance

Abstrak

This study examines the effect of thin capitalization and profitability on tax avoidance in basic materials companies listed on the Indonesia Stock Exchange (IDX) for the 2021–2024 period. The research was motivated by the ongoing issue of corporate tax avoidance in Indonesia, despite the implementation of anti–thin capitalization regulations. Using secondary data from audited financial statements, the study employed panel data regression analysis with the Common Effect Model (CEM) in EViews 12. The findings indicate that thin capitalization and profitability, both individually and simultaneously, have no significant effect on tax avoidance. The Adjusted R-squared value of –0.003957 shows that these variables explain only a minimal portion of tax avoidance behavior, implying that other factors such as firm size, capital intensity, or governance mechanisms may play a more dominant role. These results suggest that companies in the basic materials sector tend to prioritize operational stability and regulatory compliance rather than aggressive tax planning