Effects of Political Connections and Corporate Governance on Tax Aggressiveness in Indonesian Service and Banking Sectors

We investigate whether political connections and corporate governance have any effects on tax aggressiveness in service and banking sector in Indonesia. Corporate governance act as the independent variable on the first model, and as moderating variable on the second model. Tax aggressiveness is measured using effective tax rates. Political connection is measured with the amount of any connection between the company and its board member's political background. While the measurement of corporate governance are among others: board independence, board size, CEO duality, institutional ownership, and external auditor's reputation. We took the samples service companies and banks listed on the Indonesia Stock Exchange for the period 2013-2017. The analysis used in this study is the multiple linear regression analysis. The finding is that political connection does not influence tax aggressiveness in both sectors. In the service sector, corporate governance measured with CEO duality and institutional ownership has a negative effect on tax aggressiveness, while the other measurements have no effect. While in banking sectors, board size has a negative effect, institutional ownership and external auditor's reputation have a positive influence. Corporate governance did not moderate the influence of political connections on tax aggressiveness in both sectors.