Does Independent Commissioner Affect Tax Avoidance?

Evidence from Mining Companies in Indonesia

TARMIZI ACHMAD1, MONICA RAHARDIAN ARY HELMINA2, DIAN INDRIANA HAPSARI3,

IMANG DAPIT PAMUNGKAS3

1Department of Accounting, Faculty of Economics and Business, Universitas Diponegoro,

INDONESIA

2Department of Accounting, Faculty of Economics and Business, Universitas Lambung Mangkurat,

INDONESIA

3Department of Accounting, Faculty of Economics and Business, Universitas Dian Nuswantoro,

INDONESIA

Abstract: - This study investigates how Tax Avoidance is affected by the proportion of independent

commissioners, audit committees, and executive risk preferences. Independent commissioners, audit

committees, and executive risk preferences are the independent variables, and firm size is the control variable.

The variable of tax avoidance is the dependent variable. This study's population consists of all mining

companies listed on IDX between 2016 and 2021. The examples in this study are 26 organizations from 156

mining organizations. Purposive sampling is used in the sampling technique. Secondary data and quantitative

data are the data types and sources utilized. Information is broken down utilizing numerous relapse

examinations of SPSS 26. According to the findings of this study, the proportion of independent commissioners

influences Tax Avoidance. Tax avoidance is unaffected by the audit committee, executive risk preferences, or

company size.

Key-Words: Tax avoidance, Independent commissioners, Executive risk preferences

Received: May 21, 2023. Revised: August 9, 2023. Accepted: September 1, 2023. Published: September 8, 2023.

1 Introduction

According to official information from the Republic

of Indonesia's Ministry of Finance, the country's tax

ratio has decreased since 2016. The tax ratio in

Indonesia fell to 11.6 per cent in 2016, 10.8 per cent

in 2017, and 10.7 per cent in 2018. The tax ratio has

decreased, and Indonesia's tax revenues have yet to

reach their goal, [1]. In 2016, revenue was only

83.29 per cent of what was expected. The

achievement of tax income has fallen short of the

target for the upcoming biennium, and in 2019, it

only reached 93.86 per cent of the goal. The

behaviour of taxpayers who attempt to lessen their

tax burden cannot be separated from the reduced tax

ratio and the failure to realize revenue. The public's

authority will expand income from the duty area the

other way to the organization's objectives as a

citizen. One of the taxpayers who significantly

contribute to the nation is the company.

Tax avoidance is an active resistance that does

not violate the law by minimizing the tax they bear

to be small, but this is not recommended to be done.

Moving a business or domicile from a location with

a high tax rate to a low tax rate is one method of tax

avoidance. Other methods include taking advantage

of loopholes or flaws in existing tax laws. The

business will have a bad reputation for long-term

business continuity, necessitating expenditures on

labour and time. The presence of an autonomous

overseer is a fundamental aspect of corporate

governance that every company should have. The

company's autonomous overseer must prevent the

management from engaging in financial statement

deception and supervise their actions. Thus, the

existence of an autonomous overseer can act as a

link between the management and the shareholders.

According to POJK Number 57 4/POJK.04/2017, at

least 30 per cent of the board of commissioners'

members must be independent commissioners.

The independent commissioner's propensity to

exhibit the correlation between the two obstructed

corporate administration from participating in Tax

Avoidance. It is anticipated that the company's

presentation of an independent commissioner will

lessen the amount of fraud committed by

management when reporting tax returns. In addition,

independent commissioners are expected to mediate

between management and shareholders when

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DOI: 10.37394/23207.2023.20.165

Tarmizi Achmad, Monica Rahardian Ary Helmina,

Dian Indriana Hapsari, Imang Dapit Pamungkas

E-ISSN: 2224-2899

1908

Volume 20, 2023

formulating policies to ensure the business does not

break the law.

The audit committee is the next factor. The audit

committee will enhance the oversight power of the

board of directors regarding the company's financial

reporting process and establish and implement an

efficient internal monitoring mechanism, [2], [3],

[4], [5]. The audit committee, by its role, can help

the board of commissioners so that information

asymmetry does not occur by monitoring and giving

opinions to management on the ongoing internal

control within the company, [6], [7]. In addition,

many audit committees can enhance the quality of a

company's good governance to prevent tax

avoidance, [8].

In addition to these factors, tax avoidance is also

taken by the policies taken by executives, namely

the executive risk preference. Executive tax

collection can be done because the executive

represents the party who received the decision, [9].

As the company's manager, the organizational agent

management of the company asks which decisions

are best for the business. The character of a

company's management is a significant factor in tax

avoidance. Making risky decisions is more difficult

for corporate management in tax avoidance

businesses. The measure of a company's size is its

size in units. The organization's size can decide the

size of the absolute worth of resources claimed by

the organization, where the more enormous the

organization's complete resources will likewise

expand the organization's productivity, [10].

Companies take advantage of opportunities in every

transaction for tax avoidance efforts.

2 Literature Review

2.1 Agency Theory

[11], argue that the principal's relationship with an

agent raises different interests because there is a

principle that humans are trying to maximize the

benefits of their interests. However, actions taken by

management are only sometimes in line with what

shareholders expect. The primary purpose of agency

theory is to explain how parties associated with the

agreement can design agreements that aim to

minimize costs due to information asymmetry.

According to, [12], agency theory is emphasized to

overcome two problems in agency relationships.

The first issue is that it is difficult for the

principal to determine whether the agent's actions

are correct when the principal and agent have

divergent expectations or goals. Second, problems

occur when facing risks where the principal and

agents have an attitude in dealing with risk. Third,

according to, [11], agency conflicts and costs that

shouldn't have to be incurred by the company if

managed by the owner will result from this conflict

between interests. For example, the shareholders

want to pay the most taxes possible so that the

company doesn't lose its good name, and the

management wants to make a lot of money while

spending the least amount of taxes possible. Fourth,

conflict arises because the business views tax as an

expense that can lower its Profit; therefore, it is

necessary to implement measures to decrease the

taxes paid. Tax avoidance refers to the strategy of

trying to reduce the tax liability.

2.2 Hypothesis Development

2.2.1 The Effect of the Independent

Commissioners on Tax Avoidance

Based on agency theory, shareholders need help

overseeing what management is doing. Agency

conflicts between shareholders and company

management can result in an imbalance of

information. Management sometimes tends to cover

up information that occurs to shareholders to cover

their interests. Overcoming the problem so that it

does not happen, the company Audit Committee

(X2), Proportion of Independent Commissioners

(X1), Executive Risk Preference (X3), and Tax

Avoidance (Y). H1, H2, and H3 form an

independent board of commissioners not affiliated

with any party to equalize and protect the rights of

holders' shares and other parties. The presence of

independent commissioners in the company will

impact management decisions, including those

regarding tax payments, which are expected to

reduce the likelihood of fraud.

The gap between shareholders and managers can

be bridged by having an independent commissioner.

Managers' Tax Avoidance tends to decrease in

proportion to the independent commissioner of the

company, [13]. The extent of free magistrates in the

association impacts an organization's expense

evasion rehearses. The company's independent

commissioners will make performance management

more stringent to stop management from trying to

avoid paying taxes. This is also backed up by, [14],

[15], [16]. From the account provided, it can be

inferred that an independent commissioner can

increase supervision of management performance.

H1: Independent Commissioners influences Tax

Avoidance

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Tarmizi Achmad, Monica Rahardian Ary Helmina,

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E-ISSN: 2224-2899

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2.2.2 The Influence of the Audit Committee

on Tax Avoidance

The audit committee, by its role, can help the board

of commissioners so that information asymmetry

does not occur by monitoring and giving opinions to

management on internal controls within the

company, [8]. Therefore, the greater the audit

committee's involvement within the organization,

the more elevated the level of corporate governance

will be within the company.

The audit committee will also control

managers' actions to get significant profits, where

managers tend to reduce their tax costs. With the

audit committee in the company, the manager will

provide accurate information to the shareholders,

and the company is facing the challenge of tackling

Tax Avoidance practices within its operations. This

is also supported by, [7]. Based on this description,

the existence of an audit committee can prevent tax

avoidance practices so that management will

provide the correct information.

H2: Audit Committee Influences Tax Avoidance

2.2.3 The Effect of Executive Risk Preferences on

Tax Avoidance

Executives, as decision-makers, consider aspects

before acting on various things that happen in the

company. The impact of action will also be

analyzed, as the risks will occur to make the best

decision, including determining corporate tax

avoidance. Agency theory is related to solving

problems that can occur in agency relationships;

One is the risk problem that arises when

shareholders and company managers have different

views of risk, [12], [17].

The management wants to generate significant

profits by depositing a small tax burden. In contrast,

the shareholders want to deposit the tax burden and

do not want the company's reputation to be bad,

resulting in long-term business continuity. The

executive risk preference factor, characterized by

the company's high and low risks, can illustrate the

company's executive risk preferences in determining

the decisions taken, including the decision to

practice tax avoidance, [10], [18], [19].

H3: Executive Risk Preference influences Tax

Avoidance

3 Method

3.1 Data Types and Sources

The kind of information utilized in this study is

auxiliary information. Optional information is a

wellspring of examination information obtained

roundabout through middle-person media. Method

of Data Collection This study employs the

documentation method. The information source

utilized in this examination is the mining

organization's yearly financial report. The IDX

official website, www.IDX.co.id, contains a list of

companies and annual reports.

3.2 Definition of Variable Operations

3.2.1 Independent Commissioners

The independent commissioner supervises the

business, assists the management, and prepares

more objective financial statements. Free chiefs are

parties that are not subsidiaries with controlling

investors, individuals from the top managerial staff,

and other leading bodies of magistrates, [20], [22].

With an increasing number of independent

commissioners, a board of commissioners can

enhance the oversight of directors' performance; the

ratio will be even more dispersed. Ace per, [24], is

calculated by the number of independent

commissioners divided by the total number.

3.2.2 Audit Committee

The audit committee is also tasked with conducting

audits and overseeing the company's financial

statements, [24]. In 37 businesses, an audit

committee is expected to provide an overview of the

internal control, accounting, and monetary policy

issues. The risks an executive will face due to his

actions are referred to as executive risk preferences.

The risk that will affect the company's ability to

continue operating is known as company risk. This

study uses company risk to measure administrative

risk preferences by dividing total assets by the

standard deviation of EBITDA, [25]. The greater the

standard deviation of EBITDA divided by the total

assets of a company indicates, the greater the risk of

existing companies.

3.2.3 Tax Avoidance

Tax avoidance attempts to pay taxes legally by

applicable laws and regulations, [8], [18]. Tax

avoidance can be an active resistance that does not

violate the law but is not recommended to be carried

out, which hurts the receipt of state tax revenues.

This variable is a proxy using the cash effective tax

ratio (CETR) formula by calculating the cash spent

to pay taxes divided by Profit before tax. CETR can

be interpreted as the amount of money the company

issues to pay taxes each year. The smaller the CETR

value, the more likely the level of corporate tax

avoidance. The greater the 38 CETR values, the less

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Tarmizi Achmad, Monica Rahardian Ary Helmina,

Dian Indriana Hapsari, Imang Dapit Pamungkas

E-ISSN: 2224-2899

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Volume 20, 2023

reasonable corporate tax avoidance practices are to

occur.

3.2.4 Company Size

A scale where companies can be classified

according to various sizes, one of which is the size

of the assets owned, [25]. The value of a company's

assets can be influenced by its size. This is because

productivity rises more rapidly once assets are

owned, [26]. Large businesses typically have a lot of

help, and vice versa. The total assets owned by the

company, the market value of shares, the average

level of sales, and the number of sales all indicate

the size of the business, [27]. Ln can calculate the

measurement of company size from the total assets

owned by the company, [25]. The results of the

Definition of Variable Operations Extracted from

various journals test are shown in Table 1 as

follows:

Table 1. Definition of Variable Operations

Variable

Proxy

Source

Tax

Avoidance

CETR: Amount of Tax paid /

Profit before tax

[28]

Independent

Commissioner

KI: Number of Independent

Commissioners /

Total Members of the Board of

Commissioners

[29]

Audit

Committee

Number of audit committees in

the company

[30]

Executive

Risk

Preferences

Standard Deviation of EBITDA

divided by Total Assets



 󰇛 󰇜









󰇛󰇜

Information: E = EBITDA

(Earning Before Interest Tax

Depreciation Amortization)

T = Total Samples, t = year

[31]

Company Size

󰇛󰇜

[25]

Source: Extracted from various journals, 2022

3.3 Population and Sample

Mining companies listed on the Indonesia Stock

Exchange (IDX) make up the population of this

study, and the study's observation period is from

2016 to 2021 using a purposive sampling technique

with a total sample of 156. The research sample is

presented in Table 2 as follows:

Table 2. Research Sample Criteria

No.

Criteria

Total

Mining companies listed on the Indonesia

Stock Exchange 2016-2021

Companies that do not load and publish

financial statements 2016-2021

(2)

The company suffered losses during the

study period

(16)

Companies that do not provide complete

data

(0)

Total Research Samples

Observation Year

Total Data

156

Source: Processed secondary data, 2022

3.3 Analysis Method

The technique of scrutinizing data employed in this

study is quantitative. This type of data can be

assessed directly through numerical information or

explanations. Examining quantitative data involves

using descriptive statistical analysis and

conventional assumptions such as normality,

multicollinearity, autocorrelation, and

heteroskedasticity tests. Additionally, multiple

linear regression analysis, t-test hypothesis testing,

and assessment of the model's fitness are carried out

by evaluating the coefficient of considerable

determination (R2). A total sample of 156 shows

that the minimum value is -6.66 and the maximum

is 2.9. For more details, the test results of the

descriptive analysis are shown in Table 3 as follows:

Table 3. Descriptive Statistics

Min

Max

Mean

Std.

Deviation

156

-3.25

1.44

-8542

.835

156

-1.78

-.46

-.9926

.277

156

0.54

1.12

1.1551

.184

156

-6.66

1.27

-.4235

1.749

SIZE

156

2.50

2.91

2.7761

.0252

Valid

156

Source: Processed secondary data, 2022

4 Result and Discussion

4.1 Result

The contribution of this study is to examine the

influence of the Independent Commissioner, Audit

Committee, and Executive Risk Preference on tax

avoidance in Mining Companies in Indonesia. The

results of testing the research hypothesis are shown

in Table 4 as follows:

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DOI: 10.37394/23207.2023.20.165

Tarmizi Achmad, Monica Rahardian Ary Helmina,

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E-ISSN: 2224-2899

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Volume 20, 2023

Table 4. Hypothesis Test Result

Path

Direct

Effect

Coefic

ient

t-test

Conclusion

Independent

Commissioner's

Tax

Avoidance

0,041

2,135

Accepted

Audit Committee

Tax

Avoidance

0,096

1,745

Rejected

Executive Risk

Preference

Tax

Avoidance

0,838

0,028

Rejected

Source: Processed secondary data, 2022

4.2 Independent Commissioners on Tax

Avoidance

Based on the results of the t-test, it can be inferred

that the presence of an autonomous overseer

impacts tax avoidance. Therefore, H1 is proven.

Furthermore, the regression coefficient findings

about the independent variable of the overseer

indicate a negative correlation, suggesting that the

higher the quality of the autonomous overseer

within the organization, the lower the incidence of

Tax Avoidance.

In his role, an independent commissioner helps

shareholders obtain accurate information from

management and oversees every company

management's actions. The relationship between the

independent commissioner and the independent

commissioners in the corporate governance

mechanism has performed an excellent supervisory

function that can prevent bad decisions made by

management and decide to practice tax avoidance,

[21], [23]. Based on agency theory, agency

problems, including shareholders, find overseeing

what direction challenging. So conflicts can result in

information asymmetry. An autonomous

commissioner within the organization can bridge the

divide between the management and shareholders.

Consequently, the management's conduct is

influenced by the commissioner's presence, resulting

in the provision of precise information to the

shareholders, [24]. This assertion is backed up by

studies conducted by, [32], which state that an

independent commissioner influences tax

avoidance.

4.3 Audit Committee on Tax Avoidance

The findings derived from the t-test indicate that the

audit committee does not impact tax avoidance.

Consequently, H2 is invalidated. As per the

regulations of POJK No. 55 of 2014, the audit

committee must consist of a minimum of three

members who are independent commissioners and

external parties from issuers/companies. Almost all

of the sample companies used had three audit

committee members; there was only one BSSR

company in 2014, with only two members on the

audit committee. A few audit committees do not

affect the high or low level of tax avoidance, [16].

Thus, the small number of audit committees does

not affect the level of tax avoidance. No audit

committee can have any effect because of other

factors. Thus, the small number of audit committees

does not affect the level of tax avoidance. No audit

committee can have any impact because of other

factors. In this study, the results of hypothesis

testing show that the audit committee’s role is

ineffective against tax avoidance. This is likely

because the audit committee in the corporate

governance mechanism needs to be more active in

determining policies related to the company’s

effective tax rate and is more likely to carry out its

duties neutrally and appropriately based on

established regulations. The audit committee’s

inability to avoid tax avoidance is not by agency

theory. The gap caused by the information

asymmetry must be resolved correctly if the audit

committee needs to carry out its duties properly.

This is supported by [8], [32], [33].

4.4 Executive Risk Preference on Tax

Avoidance

Hypotheses test results show that executive risk

preferences do not affect tax avoidance. Thus H3 is

rejected. The organizational risk preference does not

affect the executives who tend to be less courageous

in making decisions, so tax avoidance does not

affect them. The findings suggest that the level of

risk associated with a company does not necessarily

reflect the executive’s risk preferences. The study

indicates that the total value of more-than-average

executive risk preference exceeds that of more-than-

average tax avoidance. Therefore, it can be inferred

that a company’s high or low risk does not

necessarily indicate the executive’s risk preferences.

The t-test results do not align with the theoretical

framework employed in this research. [12], states

that agency theory is related to solving problems

that can occur in agency relationships. Shareholders

and management want to avoid taking more

significant risks to save the company's good name.

Control variable for company size - Based on the

outcomes derived from the t-test, it can be deduced

that the control variable for company size has no

impact on Tax Avoidance. This variable remains

unaffected since tax payment is a mandatory

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Tarmizi Achmad, Monica Rahardian Ary Helmina,

Dian Indriana Hapsari, Imang Dapit Pamungkas

E-ISSN: 2224-2899

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Volume 20, 2023

responsibility of corporations. Large and small

companies do not affect tax avoidance. That is

because large and small companies are equally

compliant with applicable laws and regulations. The

company wants to avoid taking significant risks

with a bad reputation for the company's longevity.

5 Conclusion

This study concludes that the proportion of

independent commissioners influences Tax

Avoidance. Tax avoidance is unaffected by the audit

committee, executive risk preferences, or company

size. The ratio of independent commissioners

influences Tax Avoidance. This demonstrates that

the stricter the supervision level, the higher the

proportion of independent commissioners in the

company. The existence of an independent

commissioner will influence every decision that the

company's management makes. Tax Avoidance is

not affected by the audit committee. This is because

Tax Avoidance is mainly unaffected by the audit

committee. Executive risk preferences do not

influence tax avoidance. A company's risk levels

cannot indicate administrative risk preferences.

Future studies should use different variables or

add other variables significantly influencing a

company's tax avoidance. We can use a more

extended research period so that the study results

can represent the generalized population. The object

of further research should be to use other sector

companies that are indicated as possible tax

avoidance and become the target of the Directorate

General of Taxes.

Acknowledgement:

This research funded Penelitian Dasar Unggulan

Perguruan Tinggi (PDUPT), DRPM DIKTI.

Number: 225- 82/UN7.6.1/PP/2022.

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WSEAS TRANSACTIONS on BUSINESS and ECONOMICS

DOI: 10.37394/23207.2023.20.165

Tarmizi Achmad, Monica Rahardian Ary Helmina,

Dian Indriana Hapsari, Imang Dapit Pamungkas

E-ISSN: 2224-2899

1914

Volume 20, 2023

1506/2017.10.005.

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experience and corporate tax avoidance, vol.

22, no. 1. Springer US, 2017.

Contribution of Individual Authors to the

Creation of a Scientific Article (Ghostwriting

Policy)

-Achmad Tarmizi regarding conceptualization and

funding acquisition.

-Helmina Monica Rahardian Ary regarding

visualization and validation

-Hapsari Dian Indriana regarding supervision and

project administration

-Pamungkas Imang Dapit regarding methodology

and data curation

Sources of Funding for Research Presented in a

Scientific Article or Scientific Article Itself

This research funded the Basic Research Grants for

Higher Education, DRPM DIKTI. Number: 225-

82/UN7.6.1/PP/2022.

Conflict of Interest

This research has no Conflict of Interest.

Creative Commons Attribution License 4.0

(Attribution 4.0 International, CC BY 4.0)

This article is published under the terms of the

Creative Commons Attribution License 4.0

https://creativecommons.org/licenses/by/4.0/deed.en

_US

WSEAS TRANSACTIONS on BUSINESS and ECONOMICS

DOI: 10.37394/23207.2023.20.165

Tarmizi Achmad, Monica Rahardian Ary Helmina,

Dian Indriana Hapsari, Imang Dapit Pamungkas

E-ISSN: 2224-2899

1915

Volume 20, 2023