Policy for Minimizing Disguised Equity as Mandated by the Income Tax Law of Indonesia

Deskripsi

Indonesia seeks to overcomes Tax Avoidance and Disguised Eguity with a strategy of lowering corporate income tax rates and a limitation of Debt-to-Equity Ratio (DER) to a maximum of 4:1. This study found that a decrease in the tax rate has a positive correlation with a decrease in Tax Avoidance, but it is not strong enough to correlate with DER. On the other hand, DER limitation effectively reduce the level of DER but are not so effective at reducing Tax Avoidance. An alternative solution is reducing the Corporate Tax Rate and changing the DER limitation to interest expense limitation based on Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA).