THE INFLUENCE OF POLITICAL CONNECTIONS AND CAPITAL INTENSITY RATIO ON EFFECTIVE TAX RATE: MODERATED BY PROFITABILITY

ABSTRACT


INTRODUCTION
Indonesia as one of the developing countries in the world is trying to carry out development in several fields. One area of focus for improvement is the economic sector. Tax collection is one of the ways that the state can collect funds to support the community development process. Based on data from the Central Bureau of Statistics, it is known that the average tax revenue in Indonesia from 2017 to 2021 is 78.92%. This makes domestic tax revenue the largest contributor to state revenue. In 2021, for the first time, Indonesia will receive taxes exceeding the estimated target. During economic recovery after the COVID-19 pandemic, Indonesia obtained a net tax realization of Rp. 1,277.5 trillion from the targeted state budget tax revenue of Rp. 1,229.6 trillion. One of the government's efforts to increase tax revenues is by providing tax facilities by adjusting the income tax rate that applies to domestic companies and permanent establishments (BUT). Based on Law Number 7 of 2021 Article 17 stipulates that the rate for Corporate PPH and BUT is 22%, while public companies whose share ownership is not less than 40% has been paid up and sold on the IDX can use the 3% rate reduction facility from the general corporate mandatory PPH, namely becoming 19% (Octavia and Sari, 2022). The government's efforts in optimizing tax revenues are not without constraints, changes in tax rates from the government have not been able to provide satisfaction for companies. This raises the company's efforts in tax management.
The government needs tax revenue funds to remain stable to ensure the country's development plans, while companies view paying taxes as an unprofitable expenditure (Farouq, 2018). One way that companies can do to maximize profits is to minimize the tax burden that must be paid (Amri, 2017). Companies carry out various alternatives so that tax matters can be managed properly and provide the company's maximum contribution before making tax payments. Generally, measurement in tax planning is to use the effective tax rate because it can influence companies in making decisions as well as aspects regarding the company's tax system (Subiyanto, 2021). Political connections, capital intensity ratio, and profitability are some of the factors that influence the effective tax rate. (Kim, and Zhang, 2016) suggest that political connections can protect companies from detection risk and minimize costs arising from aggressive tax avoidance. Seeing that business and politics are related, political aspects are considered to have a large role in making tax management decisions (Utari and Supadmi, 2017). The capital intensity ratio factor is used by companies as a material consideration in increasing costs incurred by reducing income through asset depreciation items. Thus, the larger the company's fixed assets, the smaller the profit earned due to the depreciation expense item on fixed assets which reduces profits. Research (Purwanti and Sugiyarti, 2017); and (Christina and Marlinah, 2020) confirms that the effective tax rate is influenced by the capital intensity ratio.
The profitability factor shows the company's ability to earn profits from the company's operations (Ardyansah, and Zulaikha, 2014). The return on assets (ROA) indicator is used by companies to measure the effectiveness of management in managing its investments so that it can be seen how much profit is generated from the total assets owned by the company. Research (by Fitiasari and Suwandi, 2020) and (Rahmadani et al., 2020) show the result that the higher the ROA value, the lower the effective tax rate. The research object used is mining sector companies for the 2018-2021 period. The use of mining companies because in 2021 based on reports from the Ministry of Finance experienced the highest growth rate of other sectors at 59.1% with a total of Rp. 111.5 trillion, which experienced an increase in tax realization of up to Rp. 42 trillion from 2020 (Setyawan, 2021). This is supported by the presentation from the Minister of Finance, Mrs. Sri Mulyani, in 2021 that the increase in the mining sector was due to a significant increase in natural resource commodity prices, such as the price of petroleum, and soaring coal prices (Suwiknyo, 2022). The difference between this research and other research is the use of the profitability factor as a moderating variable to strengthen the effect of the independent variable on the dependent variable in the mining sector for the 2018-2021 period which has been listed on the Indonesia Stock Exchange. Based on the phenomena that have been described and several differences in the results of research that has been done before, the purpose of this study is to determine the effect of political connections and capital intensity ratio on the effective tax rate which is moderated by profitability.

THEORETICAL FRAMEWORK AND HYPOTHESES Agency Theory
Agency theory describes the relationship between the principal as the owner and the agent as the management of a company (Taufiqurokhman, 2018). Agency relationships arise because of information problems (information asymmetry) between managers and agents, namely investors or shareholders, creditors, and the government. Agency theory assumes that each party has different goals and interests, in which in achieving these goals each party will make alternatives to maximize personal interests compared to group interests (Anis, 2013). The relevance to this theory is the existence of information asymmetry between managers and the government, where managers tend to apply policies in tax management with the aim that companies are subject to lower taxes while Jurnal Akuntansi ISSN 2303-0356 Vol. 13, No.2 June, 2023 the government wants maximum tax revenue. Companies with political connections will affect the political costs incurred by the company, so the company will pay lower taxes. Meanwhile, companies with high fixed assets can allocate depreciation costs for fixed assets so that the taxes incurred will also be lower. Tax (Mardiasmo, 2018) states that taxes are mandatory contributions that must be paid by the people to the state based on the law by not getting compensation directly and used to pay public expenses. Taxes have inherent characteristics, namely a) Taxes are collected based on laws and implementing regulations; b) Tax payments are not indicated by the government as individual counter-achievement; c) Taxes are collected by the state, both central and regional governments; d) Taxes are earmarked for government expenses (Resmi, 2017).

Effective Tax Rate
Effective Tax Rate (ETR) is the application of the effectiveness of a company in managing the tax burden it bears by making a comparison between the tax burden and total net income. The lower the ETR percentage, the better the company's performance in managing its tax effectiveness (Ambarukmi and Diana, 2017). (Vintilă. et al, 2018)argue that ETR can indirectly measure a company's contribution to the government budget from company revenue because ETR can measure the overall corporate tax burden retrospectively so that it can provide information in the formation of corporate tax policies and evaluate the fairness of the tax system.

Political Connections
Political connections are relationships between certain parties and parties who have an interest in politics that are used to achieve certain things to benefit both parties (Purwanti and Sugiyarti, 2017). This political connection relationship provides several advantages for the company, including: a) The company will get political protection connected so that the risk of corporate tax avoidance is low; b) The company receives information on changes in tax regulations in the future; c) Companies experience lower pressure from the capital market in carrying out transparency which has the potential to reduce political costs in this case, related to tax evasion; d) Companies have easier access to the government (Kim, and Zhang, 2016). Measurements were carried out using the help of dummy variables where these variables are artificial variables used to quantify qualitative variables by assigning code 1 to companies that match the research indicators, while code 0 is given to companies that do not match company indicators (Purwanti & Sugiyarti, 2017).

Capital Intensity Ratio (CIR)
The Capital Intensity Ratio shows the efficiency level of a company in using assets to generate sales (Nejad and Hoseinzade, 2021). (Purwanti and Sugiyarti, 2017) stated that the percentage of fixed assets has a post for the company to add to the burden, namely the depreciation expense that arises due to the fixed assets owned as a deduction from income. The higher the percentage of fixed assets, the lower the profit generated, due to the emergence of fixed asset depreciation expenses which reduce profits. This can reduce the amount of tax paid by the company.

Profitability
Profitability is a ratio that describes a company's ability to earn profits during an accounting period and measures the level of operational efficiency in using its assets. Obtaining large profits is the goal of all companies, so this requires companies to increase their profitability (Mawaddah, 2015). The return on assets (ROA) measurement indicator is used in this study because this ratio is considered capable of measuring a company's ability to generate profits with all investment funds in assets for the company's operations. The higher the ROA value, the higher the company's profitability. Whereas companies that have a high profitability value and a lower fiscal loss compensation value will show a high effective tax rate value (Sari, 2018).

The Effect of Political Connection on the Effective Tax Rate
Special treatment received by companies such as ease of obtaining capital loans, and low audit risk makes companies not afraid of tax evasion. Research conducted by (Khoirunnisa Asadanie and Venusita, 2020) and (Sahrir et al., 2021) shows that political connections affect the effective tax rate. Contrary to research conducted by (Nejad and Hoseinzade, 2021) and (Sawitri et al., 2022) the results show that political connections do not affect the effective tax rate. Based on the research that has been done before, a hypothesis can be drawn: H1: Political connections affect the effective tax rate

The Effect of Capital Intensity Ratio (CIR) on the Effective Tax Rate
Not including the company's depreciation expense in the financial statements as a whole prevents the company from stopping the recognition of fixed assets whose economic benefits have expired to be recognized as depreciation expense. Research (Purwanti and Sugiyarti, 2017) and (Christina and Marlinah, 2020) explain that the capital intensity ratio affects the effective tax rate. Contrary to the research conducted (Ariani and Hasymi, 2018) and (Ambarukmi and Diana, 2017). Based on the research that has been done before, a hypothesis can be drawn: H2: Capital intensity ratio (CIR) affects the effective tax rate

The Effect of Political Connection on Effective Tax Rate Moderated By Profitability
Companies will earn higher profits if they carry out political connections because this is a determinant of state institutions. This encourages companies that have close political connections to affect performance within the company. Companies can minimize political costs in the form of tax burdens with political connections owned by companies, thus giving rise to benefits and convenience for a company. The results of the research conducted (Fitiasari and Suwandi, 2020) state that political connections can moderate the effect on the effective tax rate. So that the hypothesis can be predicted and drawn, namely: H3 : Profitability can moderate political connections to the effective tax rate

The Effect of Capital Intensity Ratio (CIR) on Effective Tax Rate Moderated By Profitability
Capital Intensity Ratio is a company investment activity related to fixed assets carried out by creditors, company owners, and company management (Purnama and Daljono, 2013). The existence of profitability as measured by the company's ROA is higher, and the higher the level of tax planning to reduce the tax burden that must be paid by the company, by investing company profits into fixed assets is one way of tax planning. Research conducted by (Astuty and Sari, 2022) states that profitability moderates the capital intensity ratio to the effective tax rate. So that the hypothesis can be predicted and drawn, namely: H4 : Profitability can moderate the capital intensity ratio to the effective tax rate. ISSN 2303-0356 Vol. 13, No.2 June, 2023 Based on the framework described, the conceptual chart of this research framework is illustrated in Figure 1.

RESEARCH METHODS
The type of research being conducted is quantitative research with the object of research on financial reports and annual reports of mining companies listed on the Indonesia Stock Exchange (IDX) for the 2018-2021 period. The sample collection technique used purposive sampling with a population of 76 mining companies. The sample used is 72 sample data from 18 selected mining companies. Purposive sampling is a technique used by determining certain criteria to obtain samples (Priyono, 2016). The following are the specified sampling criteria, namely: 1. Mining companies listed on the IDX 2. Mining companies that present consecutive financial reports from 2018-2021 3. Mining companies that have consecutive profits from 2018-2021 4. Mining companies that present financial reports in dollars The type of data used in this study is secondary data obtained through the Indonesian Stock Exchange receipt website. The data collection technique uses the documentation method with data analysis techniques through SEM (Structural Equation Modeling) with a partial least squares (PLS) approach to solve multiple regression and moderation models when there are data problems such as data that are not normally distributed, missing data and sample size small ones (Abdillah, 2016

RESULTS AND DISCUSSION Descriptive Statistics
Descriptive statistics are tests that are used to provide an overview of data in research which can be seen through the minimum value, maximum value, mean value, and standard deviation value of each variable (Ghozali, 2018). Based on the table above, the minimum value for political connections is 0, while the maximum value for this variable is 1. The average value of the standard deviation (0.722 > 0.451) indicates that the data distribution is relatively small, so it can be said that there is no data deviation in the political connection variable. It is known that the minimum capital intensity ratio value was 0.031 while the maximum value obtained was 0.930. The magnitude of the average value of the standard deviation (0.376 > 0.286) indicates that the data distribution is relatively small so it can be said that there is no data deviation in the capital intensity ratio variable.
The minimum value for the effective tax rate variable is 0.060 while the maximum value is 0.830. The magnitude of the average value of the standard deviation (0.265 > 0.161) indicates that the data distribution is relatively small so it can be said that there is no data deviation in the effective Jurnal Akuntansi ISSN 2303-0356 Vol. 13, No.2 June, 2023 tax rate variable. maximum of 0.670. The magnitude of the standard deviation with an average value (0.144 < 0.154) indicates that there is a large distribution of data so it can be said that there is a high data deviation in the profitability variable.

Partial Least Square (PLS) Analysis OuterModel
The criteria used in the use of data analysis techniques with SmartPLS 3.0 are convergent validity, discriminant validity, and composite reliability. The following is a PLS path scheme (structural model) in this study: Figure 2. OuterModel Source: Proceeded Data (2023)

Convergent Validity
Convergent validity is carried out to see whether the selected measurement indicators can represent a variable and underlie that variable (Ghozali, Imam dan Latan, 2015). The individual reflection measure is said to be high if it correlates more than 0.7 with the construct being measured. This study uses the outer loading limits of each indicator for the research variables:

Discriminant Validity
Discriminant validity is carried out to ensure that each concept and variable of each model is different from other variables. Discriminant validity measurements were also carried out to find out how precisely the measurement indicators were used to function properly on research variables (Ghozali, Imam dan Latan, 2015).   (2023) Based on the table above, it can be seen that the cross-loading value for each indicator of each variable does not have the greatest value of the loading value when associated with other variables. This means that each variable has good discriminant validity and does not have a gauge that is highly correlated with other constructs.

Composite Reliability
Composite reliability is used to assess how consistent the indicators used are with the research variables. These criteria can be fulfilled by looking at the Average Variance Extracted (AVE) value of more than 0.5 or using Cronbach Alpha of more than 0.7 and the composite reliability value must be more than 0.7 (Ghozali, Imam dan Latan, 2015).  ISSN 2303-0356 Vol. 13, No.2 June, 2023 This test is to test multicollinearity in knowing the relationship between indicators by looking at the Variance Inflation Factor (VIF) value which is less than 3.3 for all variable indicators. Based on the table above, it is known that all indicators of each variable have a value of less than 3.3.

InnerModel
Evaluate the inner model to test and see the specific relationship between later variables, where this relationship can describe the relationship between latent variables and substantive research theories (Ghozali, Imam dan Latan, 2015).  (2023) R-Square is used for each endogenous latent variable as a prediction from the structural model studied. If the R-Square has a value of 0.19 to 0.33 it can be said to be weak, for a value of 0.34 to 0.67 it can be said to be moderate, and it is said to be strong if the R-Square value is more than 0.68 (Ghozali, Imam dan Latan, 2015). Based on the table above shows the R-Square value of 0.322, this means that the 32.2% effective tax rate is influenced by the independent variables in the study, while 67.8% is influenced by other variables not examined.

Hypothesis testing
Testing this hypothesis uses the bootstrapping method where hypothesis testing is accepted if the T statistic value is > 1.64 and the p-value is < 0.05 (Abdillah, 2016). Following are the results of hypothesis testing from the SEM-PLS 3.0 application that has been carried out:  (2023) Based on the results of the hypothesis testing that has been done, it can be seen that H1 has a statistical T value of more than 1.64 (3.514 > 1.64) and a p-value of less than 0.05 (0.000 < 0.005) this means that H1 is accepted. H2 in this study is known to have a statistical t-value of less than 1.64 (1.670 <1.64) and a p-value of more than 0.05 (0.095 > 0.05) so it can be concluded that H2 is rejected. H3 has a t-statistic value of more than 1.64 (3.266 > 1.64) and a p-value of less than 0.05 (0.000 < 0.001) it can be concluded that H3 is accepted, whereas in H4 it is known that the t statistic value is less than 1.64 (0.887 < 1.64) and p-values of more than 0.05 (0.375 > 0.05) it can be concluded that H4 is rejected.

The Influence of political connections on the effective tax rate
The results of the analysis test prove that H1 is accepted, so it can be concluded that political connections affect the effective tax rate. There is a special relationship between the company and the government which is not regulated in the tax law regarding whether or not a higher or lower tax rate is permissible. Companies can take advantage of this political closeness relationship to provide operational convenience such as reducing tax sanctions and facilitating mining permits, so that this  (Wahab. et.al, 2017) explains that there are public observations of political behavior because there may be different characters from other countries. Offensive issues will cost the company and attract public attention. The closeness of the company's relationship makes it more prudent to make decisions so that it gets public appreciation as a compliant company and enhances its good image. The company's bad image will have an impact on decreasing trust and resulting in losses, so the company will continue to think about the long-term risks that this political connection has. The results of this study are in line with those (Manihuruk and Novita, 2022); and (Khoirunnisa Asadanie and Venusita, 2020).

Effect of capital intensity ratio on the effective tax rate
The second hypothesis proves that it is rejected, so it can be concluded that the capital intensity ratio (CIR) does not affect the effective tax rate. This is because companies with large fixed assets will also have a large depreciation expense which will reduce the profit earned and will reduce the company's tax burden. The mining sector listed on the Indonesia Stock Exchange in 2018-2021 has a larger proportion of current assets than its fixed assets. This can be seen from the increase in current assets from the previous year. In addition, based on Government Regulation of the Republic of Indonesia Number 52 of 2011 concerning income tax facilities for investment in certain business fields, article 2 paragraph 2b states that the mining sector has a high probability of obtaining accelerated depreciation and amortization facilities so that tax management cannot be carried out by companies to reduce tax payments. The research results are in line with (Putri, 2018); (Christina and Marlinah, 2020); and (Ariani and Hasymi, 2018).

Profitability strengthens the influence of political connections on the effective tax rate
The results of testing the third hypothesis are accepted, so it can be concluded that profitability strengthens the influence of political connections on the effective tax rate. Based on the theory of political cost hypothesis explaining the reason companies choose accounting policies is to minimize the income tax burden, so companies take tax management actions (Kim, and Zhang, 2016). The low possibility of inspection and reduction of tax sanctions makes companies use their privileges. Companies that have political connections are faster and can enjoy high income so the company's productivity will increase. The results of this study are in line with those (Fitiasari and Suwandi, 2020); (Suwarno. et.al, 2020); and (Megawati, 2021).

Profitability strengthens the influence of the capital intensity ratio on the effective tax rate
Based on the results of testing the data above, it can be seen that the fourth hypothesis is rejected, so it is concluded that profitability is not able to strengthen the influence of the capital intensity ratio on the effective tax rate. High profitability is due to the company's funding sources in carrying out operations using fixed assets. Large companies generally make policies that are by tax regulations, so that they will not cause fiscal corrections and the government will not raise suspicions. This makes the high or low of fixed assets does not affect the high or low of the effective tax rate. This study produces findings that are not by agency theory, where companies will take advantage of their fixed asset gaps for tax avoidance. The results of this study are by stakeholder theory which assumes that companies need government support to regulate company operations, while the government requires optimal taxes for the country's economic development. The existence of aligned interests makes companies comply with government regulations, one of which is by complying with applicable tax rules. The results of this study are in line with (Wahyuni and Prastiwi, 2020) and (Rianto and Muhamad Alfian, 2022). .