The Effect of Environmental Uncertainty and Financial Distress on Tax Avoidance with

Business Strategy as Moderating Variables 944

INTRODUCTION

Tax is a state levy on individuals or entities that is mandatory and coercive, used

for the greatest prosperity of the people. Following Law Number 28 of 2007 concerning

avoidance (Yuniarti, et al., 2020).

Since the coronavirus or covid -19 pandemic struck, the performance of tax

revenues has continued to contract. The fall in tax revenue is in line with the sluggish

economic performance this year, many are projected by several parties to be at a negative

level. Data from the Director-General of Taxes confirms that although the pandemic only

started in March 2020, until the end of the First Quarter of 2020, tax revenue was only

Rp. 241.61 trillion. When compared with the same period last year, the performance of

tax revenue experienced a slowdown, with a contraction of 2.47 percent (Suwiknyo,

2020).

The Covid-19 pandemic has caused various business sectors to experience difficult

COVID-19 pandemic will provide a high possibility for companies to take tax avoidance.

Tax avoidance or commonly referred to as tax avoidance in general can be said to

be a tax avoidance scheme to minimize the tax burden by taking advantage of loopholes

in a country's tax provisions (Jusman and Nosita, 2020). Tax avoidance is carried out by

taking advantage of loopholes in the tax law that are not or have not been regulated so

that it is legal and does not violate the law. The purpose of tax avoidance is to minimize

and optimize the tax burden that must be paid.

One of the cases of tax avoidance in Indonesia is the case of the tobacco company

owned by British American Tobacco (BAT) through PT Bentoel Internasional Investama.

BAT has shifted some of its revenue out of Indonesia in two ways. First, through intra-

tax deduction for royalties on trademarks is 15% from US$ 10.1 million or US$ 1.5

million. IT fees are not stated in the agreement, because similar to royalties, the report

assumes an IT fee deduction of US$ 0.7 million. So that the lost income from Indonesia

reaches the US $ 2.7 million per year (Prima, 2019).

Research with the dependent variable of tax avoidance has been carried out, both

from within the country and abroad. Research conducted in Indonesia related to this topic

has been carried out by Marfirah and Syam BZ, (2016), Meilia and Adnan, (2017),

(2019), Kalil, (2019) and Dhawan, et al., (2020).

In addition, regarding the independent variable environmental uncertainty on tax

avoidance, there have been previous studies conducted by Ratu and Siregar, (2019),

Seviana and Kristanto, (2020), Syarendra and Kristanto, (2020) and Arieftiara, et al.,

(2020) which states the results of his research that environmental uncertainty has affect

tax avoidance. Meanwhile, research conducted by Huang, et al., (2017) states that the

results of the study show that environmental uncertainty has no effect on tax avoidance.

There are also previous studies that examined financial distress on tax avoidance,

the following are studies related to this topic that have been carried out by Edwards, et al.,

(2016), Meilia and Adnan, (2017), Tilehnouei, et al., (2018), Alifianti, et al.., (2017),

strategy has an effect on tax avoidance. Meanwhile, research conducted by Wardani and

Khoiriyah, (2018), Windyasari, et al., (2019), Harianto, (2020), Nurrahmi and Rahayu,

(2020), Anggraini, et al., (2020), and Fathorrahman and Syaiful, (2019) stated that the

results of business strategy research have no effect on tax avoidance.

The difference between this study and previous studies is that it proxies the

dependent variable with the current state of the covid-19 pandemic. In addition, the

authors add business strategy as a moderating variable. The choice of business strategy as

a moderating variable because the business strategy will affect the entire transaction and

costs including taxes.

The Effect of Environmental Uncertainty and Financial Distress on Tax Avoidance with

Business Strategy as Moderating Variables 944

The Effect of Environmental Uncertainty and Financial Distress on Tax Avoidance with

Business Strategy as Moderating Variables 946

The Effect of Environmental Uncertainty and Financial Distress on Tax Avoidance with

Business Strategy as Moderating Variables 948

by the financial distress variable (FD) of 0%. So it can be concluded that the regressor in

equation (4), namely financial distress (FD) does not affect tax avoidance (TA). Equation

(4) shows the coefficient on the financial distress variable is 0.34 and is significant at

0.866 which is greater than (0.05). So this study does not support H2, the results of which

state that financial distress does not affect tax avoidance.

d. Equations (5) and (6) in the table above are used to test the moderating of the

moderating variable between financial distress (FD) and tax avoidance (TA) variables.

The main requirement before conducting this moderation test is that H2 is accepted which

states that the financial distress variable affects tax avoidance. Based on equation (5) in

the table above, the value of R2 has increased from 0.036 (3.6%) to 0.99 (99%) in

level of uncertainty in an environment, the higher the level of tax avoidance by the

company.

Environmental conditions with uncertainty encourage management to save costs by

avoiding tax (tax avoidance). Environmental uncertainty has the unpredictable nature of

the possibility of future events. Although it is difficult to predict, the role of managers is

very influential to overcome environmental uncertainty with developed strategies (Ghosh

and Olsen, 2009). Tax avoidance is carried out under conditions of environmental

uncertainty as a management effort to maintain the trust of investors.

The results of this test support the results of research conducted by Ratu and

Siregar, (2019), Seviana and Kristanto, (2020), and research by Syarendra and Kristanto,

products, and facing instability and uncertainty supports prospectors to carry out tax

avoidance activities with high intensity (Arieftiara et al., 2015).

The results of this test support the results of research conducted by Arieftiara et al.,

(2015) and Faradiza, (2019) in terms of tax avoidance companies that implement

strategies as prospectors are more likely to take tax avoidance actions than companies

with defender strategies.

Based on the Moderating Regression Analysis test, the results obtained support H4

corporate tax avoidance (Anggraini et al., 2020).The results of this test support the results

of research conducted by (Indirawati & Dwimulyani, 2019) which states that business

strategies do not moderate the relationship of family ownership to tax avoidance.

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