Does capital intensity , inventory intensity , firm size , firm risk , and political connections affect tax aggressiveness ?

Tax aggressiveness is one of a critical issue in the world of taxation. Many companies do tax planning to minimize their tax abilities. This study aims to examine how capital intensity, inventory intensity, firm size, firm risk, and political connections, relate to the tax aggressiveness of manufacturing listed companies in Indonesia, an emerging economy of Southeast Asia. This study combined the tax aggressiveness factor from different perspectives into one model. This study used purposive sampling with manufacturing companies listed in Indonesia Stock Exchange during 2015-2017 and experienced a consecutive profit as the main criteria. Panel data regression used as a data analysis technique. The result shows that there is a significant effect between capital intensity, political connection, and tax aggressiveness. The relationship between inventory intensity, firm size, firm risk, and tax aggressiveness failed to prove in this study. This result is consistent across several measures of tax aggressiveness.


Introduction
Although, tax is one of the important sources for the country to finance their expenditures (both for expenditure routine and development expenditure). The fact that the ratio of Indonesia tax revenue which is below the standards of ASEAN countries indicates that there is some gap that needs to be explored (Subadriyah & Aliyah, 2018). Carolina et al. (2014) argued that for companies, tax is a burden that can reduce the company's net income.
Companies tend to be aggressive in taxation and looking for ways to reduce their burden through various tax planning treatment both legally (tax avoidance) or even illegal.
Several factors can influence the tax aggressiveness of companies. Dunbar et al. (2010) argue that capital intensity (company investment in fixed asset) correlates with overall tax planning opportunities. Richardson et al. (2016) added that capital intensity is positively associated with tax aggressiveness due to the accelerated depreciation charges based on a fixed asset. Thus, inventory-intensive firms should be negatively associated with tax aggressiveness which means the larger the inventory level of companies, the smaller the tax avoidance intention (Stickney & McGee, 1982).
On the other hand, Lanis & Richardson, (2012), Sari &Tjen (2016), andDevi et al. (2018) concluded that firm size is positively and significantly affect tax aggressiveness which means that the larger the size of the firm the more aggressive the tax policy. Guenther et al.
(2017) add firm risk as a determinant of corporate tax aggressiveness and tax avoidance. He concluded that there is a positive correlation between firm risk, tax aggressiveness, and tax avoidance. Kim & Zhang (2016), Abdul Wahab et al. (2017), andYing et al. (2017) included political connections as another predictor of tax aggressiveness. They concluded that politically connected firms would be more aggressive in their tax policy rather than nonpolitical connected firms.
Briefly, there are five factors at least that can enhance the tax aggressiveness intention of the company namely capital intensity, inventory intensity, firm size, risk, and political connections. Interestingly, there are 3 of the five factors mentioned above still debatable since there is another research that concluded differently. For inventory intensity in an example, research from Savitri & Rahmawati (2017) found that the inventory intensity per se does not influence tax aggressiveness which is contradictory with Stickney & McGee (1982) and Nurfauzi & Firmansyah (2018) conclusion. Recent research from Rusydi (2013) and Ann size has a negative and significant effect on tax aggressiveness. Therefore, the fact that there is a different conclusion of the effect of inventory intensity, firm size, firm risk on tax aggressiveness needs to be explored. This research aims to analyze capital intensity, inventory intensity, firm size, firm risk, and political connections on tax aggressiveness of listed manufacturing companies in the Indonesia Stock Exchange (2015)(2016)(2017). This study chose the manufacturing sector since it has the greatest contribution compared with other sectors.

Literature Review
Capital Intensity Lubatkin & Chatterjee (1994) stated that capital intensity is often considered as representative of firm operating leverage. Nugraha & Mulyani (2019) defined capital intensity as the amount of fixed asset investment activities carried out by companies. (Stickney & McGee, 1982) added that capital intensity can be measured as gross plant assets/total assets, net plan asset/total asset, depreciation and amortization expense/number of employees, gross plan assets/number of employees. The formula used in this research is;

=
(1) Dunbar et al. (2010) and Richardson et al. (2016) concluded that capital intensity has a positive relationship with tax aggressiveness.

H1:
There is a significant relationship between capital intensity and tax aggressiveness.

Inventory Intensity
Inventory intensity considered one of the most crucial firm-specific characteristics that can influences tax aggressiveness. Devi et al. (2018) defined inventory intensity as the level of investment that occupied by the company on its inventory. Stickney & McGee (1982) and Nurfauzi & Firmansyah (2018) concluded that there is a negative correlation between inventory intensity and tax aggressiveness. The larger the inventory level of companies, the smaller the tax avoidance intention. Inventory intensity in this study is measured as inventory divided by total assets (Richardson & Lanis, 2007).

H2:
There is a significant relationship between inventory intensity and tax aggressiveness.

Firm Size
The size of a company can affect taxes in several ways which are tax aggressiveness by nature and tax reduction by using political advantage. (Kim & Im, 2017) added that based on the theory of cost it can be concluded that the larger t e size and profit of companies, the higher possibilities of companies doing tax aggressiveness by nature. While based on political theory, the larger size of companies means the higher political advantage so that it can carry out tax planning to reduce taxes that must be paid to the state using existing gaps. H3: There is a significant relationship between firm size and tax aggressiveness.

Firm Risk
Paligorova & Santos (2017)  There is a significant relationship between firm risk and tax aggressiveness

Political Connection
The political connection is a dilemma that plagues its capital market. Political connection   Richardson et al. (2016) that stated there was a significant relationship between capital intensity on tax aggressiveness. The significant values of that relationship (0.000) were lower than 0.050 which means that H1 is accepted. (Sonia & Suparmun, 2019) added that the company which has high capital intensity tend to do tax avoidance practice legally since the fixed assets can reduce their tax bill by the depreciation. Thus, the depreciation can reduce the company's profit directly while doing tax calculation. This study also concluded that political connection has a significant relationship on tax aggressiveness. The significant values of that relationship (0.019) were lower than 0.050 which means that H5 is accepted. Adhikari et al. (2006) added that company with politically connected tend to do tax planning aggressively than non-politically connected company since they have a better information regarding tax regulations and enforcement, lower political cost, lower transparency (Kim & Zhang, 2016), incentives, enforce tax legislations, and freedom to overlap policies to gain more tax benefit.
Unfortunately, this study failed to prove the proposed hypothesis which stated that there is a significant partial relationship between inventory intensity, firm size, firm risk, and tax aggressiveness. The significant values of that relationship (0.093; 0.654; 0.089) were higher than 0.050 which means that H2, H3, H4 are rejected. Nurhayati et al. (2019) argued that inventory as part of the investment is not the best-suited strategy to minimize tax burden since companies which have a higher level of inventory perceived as worse market position due to their low level of inventory. Richardson & Lanis (2007) added that companies that can be classified into big size company categories have limited action to do tax planning due to the high surveillance level of government, financial analyst, and media. Their big size visibility causes them to become easy targets of the tax regulator. Therefore, it is too risky for them to do tax planning especially when they experienced a consecutive profit. Firmansyah & Muliana (2018) added that tax avoidance could enhance the firm risk for several reasons like the uncertainty of future tax payments and serve as bad leading indicators of firm risk.

Conclusion and Suggestion
Our study has provided empirical evidence on tax aggressiveness behavior in Indonesia.
We have managed to expose the effect of capital intensity, inventory intensity, firm size, firm risk, and political connections on tax aggressiveness. Using a sample of manufacturing listed companies in Indonesia covering the period from 2015 to 2017, we find that there is a significant effect between capital intensity, political connection, and tax aggressiveness. It means that the higher the capital intensity and politically connected, the higher the tendencies of a company to do tax planning aggressively. However, we have no evidence to prove our proposed hypothesis regarding the effect of inventory intensity, firm size, firm risk on tax aggressiveness. The previous study claimed that inventory as part of the investment is not the best-suited strategy to minimize the tax burden. As the bigger the size of the company, the higher the risk of a company to do tax planning due to the high surveillance level of government. Further research should focus on the different industries and explore the external and internal factors of tax aggressiveness.