Factors Affecting Corporate Income Tax Payable: Solvability, Debt to Equity Ratio ,
and Profit Management

Pristine Hollysa 1 , Cris Kuntadi 2

1)
Master of Accounting Study Program, Asian Institute of Banking and Informatics Finance
(Perbanas Institute), Email: hollysapristine@gmail.com
2)
Jakarta Bhayangkara University , Email: cris. kuntadi@dsn. u bharajaya.ac.id

Corresponding author: Pristine Hollysa

Abstract : Previous research or relevant research is very important in a research or scientific

article. Previous research or relevant research serves to strengthen the theory and
phenomenon of the relationship or influence between variables. This article reviews the
factors that influence corporate income tax payable, namely Solvability, Debto to Equity
Ratio, and Earnings Management, a literature study on tax accounting. The purpose of writing
this article is to build a hypothesis on the influence between variables to be used in further
research. The results of this literature review article are: 1) Solvability affects corporate
income tax payable; 2) Debt to Equity Ratio affect the Income Tax Payable; and 3) Profit
Management has a significant effect on Corporate Income Tax Payable.

Keywords: Corporate Income Tax , Solvency, Debt to Equity Ratio o, and Profit
Management

INTRODUCTION
Background of the problem
In the current era of globalization, many countries, including Indonesia, are faced with
a developing and dynamic economy. Along with the times, in order to meet the needs of
society, a country does not only make natural resources the main source of income. One form
of the government's efforts to obtain state revenue by carrying out economic development in
the industrial sector and receiving taxes paid by taxpayers in Indonesia, which is one of the
economic contributors in Indonesia.
Taxes have made a significant contribution over the last few years, which can be used
as a source to finance national activities and national development which can improve the
country's economy. Tax revenue reached IDR 1,147.5 trillion or 89.4% of the 2017 State
Budget target (www.kemenkeu.go.id). This is due to the fact that relatively high corporate or
corporate income will result in high income tax. The bigger the business, the more taxes it
generates. Because they can generate high income, they can generate high taxes, especially
for businesses that have gone public such as companies in the mining sector, as well as other
areas of the economy. In one accounting period, the taxes they generate can reach billions or
even trillions of rupiah. However, over time, the corporate income tax can be reduced by
paying interest on the company's debts to third parties. Therefore, debt is one of the most
important things to ensure that the business survives. Even debt, both in the short and long
term, can be a component of the company's funding or capital.
According to ( Nanda, 2019) the income tax law in Indonesia regulates income tax on
tax subjects relating to income received or earned in a tax year. So that the tax subject is
subject to income tax if he receives or earns income. In this case, there are several ways for

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companies to legally minimize the tax burden. One of them is by strengthening solvency or
the level of use of debt which is calculated by solvency, debt to equity ratio and earnings
management in order to obtain maximum profit.
This article will provide articles that discuss the factors that influence corporate income
tax payable. This aims to make it easier for lecturers, students, researchers, and other
functional staff to find relevant articles to strengthen the theory under study, in order to see
the relationship or influence between variables and determine the hypothesis. This article
discusses the effect of solvency, debt to equity ratio and earnings management on corporate
income tax payable, a literature review study in the field of tax accounting.

Formulation of the problem

Based on the background, the problems that will be discussed can be formulated in
order to build hypotheses for further research, namely:
1. Does Solvability affect the corporate income tax payable?
2. Does Debt to Equity affect the corporate income tax payable?
3. Does earnings management affect the corporate income tax payable?

THEORITICAL REVIEW
Tax
Is there a tax on the transfer of assets owned by companies, both from the private sector and
individuals to the state, can be coercive in nature, which is owed to those who are obliged to
pay it in accordance with the regulations, with no achievement back, who can be directly
appointed, and whose use is to finance expenses general affairs relating to the duty of the
state to administer the government.
Tax Function
According to Wicaksono (2017) taxes have functions, namely:
a. Receipt Function (Budgetair)
Taxes function as a source of funds earmarked for financing government
expenditures. In the APBN, taxes are a source of domestic revenue
b. Setting Function
Taxes function as a tool to regulate or implement policies in the social and economic
fields, for example VAT on BM for liquor and other luxury goods.
c. Redistribution Function
In this redistribution function more emphasis is placed on the elements of equity and
justice in society. This function can be seen from the existence of a tariff layer in
taxation with a higher tax rate for a higher level of income.
d. Democracy Function
Tax in the function of democracy is a form of mutual assistance system. This function
is associated with the level of government service to the taxpayer community.

Corporate Income Tax

The seventh part, Article 4 Paragraph 1, Law Number 11 of 2020 regulates income tax
objects. Some income that is subject to tax according to Article 4 Paragraph 1 includes
operating profits, profits from the sale or delivery of property, gains from changes in foreign
currency exchange rates, gains from valuation of assets, insurance premiums, and others
which are regulated in that article in more detail. Article 6 Paragraph 1 of Law Number 36 of
2008 regulates income tax deductions. According to the article, gross income is used to

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determine the amount of taxable income for domestic taxpayers and types of permanent
businesses. Then deduct the costs used to obtain, collect, and maintain revenue. According to
Sibarani (2018: 40), to calculate the amount of income tax payable, first determine the tax
base, then this taxable income is multiplied by the tax rate. Calculation of taxable income for
corporate taxpayers, by means of income which is a tax object reduced by the costs allowed
in the law, then multiplied by the income tax rate. In Chairul's research (2018), corporate
income tax is calculated through the amount of the company's current and deferred tax

Solvability
According to (KUSWANDI, 2006, p. 182)The Solvency Ratio is a measure of how
capable a company is to pay long-term debt, either principal or interest.
According to KUSWANDI, 2006, p. 183)the types of ratios that exist in the solvency
ratio between
other :
1. Debt to Asset Ratio (Debt Ratio)
Debt Ratio is a ratio that measures how much money a company has from long-term
debt compared to its assets
2. Debt to Equity Ratio
Debt to equity ratio is the ratio used to assess debt to equity.
3. Long Term Debt to Equity Ratio (LTDTER)
LTDtER is the ratio between long-term debt and own capital. The formula for finding
the long term debt to equity ratio is to use a comparison between long term debt and
own capital.
4. Times Interest Earned
Times interest earned is a ratio to measure the extent of income. can decline without
the company feeling embarrassed about not being able to pay its annual interest
charges
5. Fixed Charge Coverage (FCC)
Fixed charge coverage is a ratio that resembles the times interest earned ratio. It's just
that the difference is that this ratio is carried out if the company obtains long-term
debt or leases assets based on a lease contract.

Debt to Equity Ratio

The extent to which the owner's capital can cover debts to outsiders is measured by
the ratio of debt to capital (Widyaningsih, 2018). One of the ratios used to assess debt and
equity is the debt to equity ratio, which is also known as the leverage ratio. According to
Kasmir (2010), this ratio compares all current liabilities to total equity. However, Sofyan
(2010) says that there is another ratio that explains the extent to which owner's capital can
cover debts - debts to outsiders.

Profit management
Earnings management is used by managers to fulfill the responsibilities of company
owners for increasing profits and market value of the company for a certain period of time, so
that they are re-contracted to serve as managers in the next period. This is done because they
do not have much information and knowledge about company owners and external parties
such as investors, and because the focus of owners and investors is limited. This can lead to
violations and crimes that may be committed by company management. However, because
the focus of earnings management is not always on the manipulation of accounting data,
management is more inclined to choose management's preferred accounting methods for

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specific purposes outside the constraints of GAAP. Elok (2012) earnings management has a
negative effect on the company's financial performance. This means that the influence
resulting from earnings management practices has an impact on decreasing the company's
financial performance. One of the goals of both manufacturing and non-manufacturing
companies is to maximize the welfare of shareholders or investors by maximizing firm value
by obtaining maximum profit (Anwar Pohan, 2013). On the other hand paying taxes is one of
the company's obligations that cannot be avoided. However, companies can carry out tax
management so that the amount of tax to be paid is low. One of the tax management related
to the use of debt is the interest expense on debt which includes business expenses which can
be a deduction from income, causing the company's taxable profit to decrease which will
ultimately reduce the amount of tax that must be paid by the company. Earnings management
is a managerial activity in order to increase, decrease and/or make a profit distribution plan
during the period of a company presented in the financial statements (Panjaitan & Muslih,
2019). Earnings management is management intervention in the process of preparing external
financial reports with the aim of benefiting the company (Lestari & Murtanto, 2018).
Earnings management also has the meaning of efforts or endeavors carried out by the
manager of an entity to interfere with or influence the information contained in the financial
statements with the aim of tricking stakeholders who want information about the
achievements and condition of the company. (Widyaningsih & Horri, 2019)

Table 1
Relevant previous research

No Authors Previous research Similarities to this difference with this

(year) results article article

1 (Anggraini & 1. Debt to Equity Debt to Equity Ratio -

Kusufiyah, 2020) Ratio has a Affects the
significant corporate income
influence on tax payable
corporate income
tax payable

2 (Azhari Nim, 1. Debt to Equity Profit Management The Debt to

2015) Ratio has no has no effect on Equity Ratio has
effect on the corporate income an influence on
company's tax payable corporate income
corporate income tax payable
tax payable
2. Profit
Management has
no effect on the
company's
corporate income

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tax payable

3 (Anam. Chairul 1. Solvency has a Solvency has an -

& Zuardi, 2018) positive and influence on
significant corporate income
impact on tax payable
corporate income
tax payable

.4 (Trisnawati 1. Solvability - 1. Solvency has

Indah Fatma, variable has no an influence
2021) effect on on corporate
corporate income income tax
tax payable. payable
2. The Debt to
Equity Ratio
variable has no 2. Debt to
effect on the Equity Ratio
corporate income Affects the
tax payable. corporate
3. Profit income tax
Management payable
variable has no 3. Profit
effect on Management
corporate income has an effect
tax payable. on corporate
4. The results of the income tax
study payable
simultaneously corporate
show that income tax
solvency, debt to
equity and
earnings
management
have a positive
effect on
corporate income
tax.
.5 (Azhari Nim, Earnings Profit Management -
2015) management has a influences corporate
significant effect on income tax
corporate income tax
payable in plastic
and packaging sub-
sector companies

WRITING METHOD

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Qualitative methods and library research are used as methods for writing scientific
articles. Research on theories and relationships or effects between variables in books and
journals both offline in libraries and online through Mendeley, Google Scholar and other
online media.
Good review literature does not just summarize from various scientific sources, but
good review literature is scientific work that is able to analyze, synthesize and evaluate
critically to provide a clear picture and information on a topic/problem/method (Hart, 2018)

DISCUSSION
Based on relevant theoretical studies and previous research, the discussion of this
literature review article in the concentration of Corporate Income Tax Payable is:

1. Effect of Solvency on Corporate Income Tax Payable

(Anam. Chairul & Zuardi, 2018)conducting research to determine the effect of the
solvency ratio on corporate income tax payable, this study used a purposive sampling
technique and data collection techniques using secondary data types. The study population is
all companies in the mining sector listed on the Indonesia Stock Exchange (IDX) from 2011
to 2016. The trial results show that the solvency ratio affects corporate income tax payable in
the mining sector.
The results of the study show that if the solvency ratio increases by 1% and other
variables are held constant, the corporate income tax payable in the mining industry will
increase by 0.025 or 2.5%, and vice versa. The corporate income tax payable, which is
caused by the large percentage of the liquidity ratio, will also increase or decrease . The
solvency level of mining companies remained around 0.82, indicating that most of their
funding comes from debt. This allows companies to obtain low corporate income tax, even
though there are companies with negative solvency rates. . This negative number comes from
very low capital or even minus, and the overall debt obtained is high. Therefore, a negative
figure in the solvency ratio comes from capital, resulting in a negative ratio and this can have
a very bad impact on the company. So, it can be concluded that the higher the level of
solvency (debt to equity ratio), the higher the amount of corporate income tax paid by
companies from the mining sector, and vice versa.
However, research by (Trisnawati Indah Fatma, 2021)which shows different research
results, namely solvency has no effect on corporate income tax payable.

2. Debt to Equity Ratio to Corporate Income Tax Payable

(Digdowiseiso, 2021)by using secondary data types derived from annual reports from
LQ45 companies listed on the Indonesia Stock Exchange from 2015 to 2019 with 50 financial
reports. Generates a hypothesis that the Debt to Equity Ratio 9DER) has a positive effect on
corporate income tax payable. Based on the results of the analysis of data testing that has
been carried out, it is known that the Debt to Equity Ratio (DER) results have a sig value of
0.000 <0.05 so this shows that H0 is rejected and H1 is accepted. This condition indicates that
the Debt to Equity Ratio (DER) has a positive and significant effect on corporate income tax
payable.
The results of this study are in line with research conducted by those (Trisnawati
Indah Fatma, 2021)who stated in their research that the Debt to equity ratio has a negative
and significant effect on corporate income tax payable. If the funds provided by investors are
higher, the ratio level will also increase, the difference is the interest costs of the loan with the
dividends paid by the company to investors. Supported by the theory of capital structure,
namely the theory of trade off has an impact or benefit to reduce taxes (Irfani, 2020, p. 32).

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The results of this study are inconsistent with the results of research conducted by
(Azhari Nim, 2015)which states that the Debt to Equity Ratio has no significant effect on the
variable Income Tax (PPh) Payable.

3. Effect of Profit Management on Corporate Income Tax Payable

(Azhari Nim, 2015)by using a descriptive research method with a quantitative approach,
the sampling technique used a purposive sampling technique with the criteria of property and
real estate companies listed on the IDX during the 2013-2014 period. to get the results of the
study, that the earnings management variable partially has the direction of the regression
coefficient and the resulting significance value is smaller than the supposed significance
level (0.442 <2.200), so that the hypothesis can be rejected, namely the earnings
management variable does not have a significant effect on the variable Corporate Income
Tax payable, however This study supports research conducted by (Anggraeni & Arief,
2022)which states that earnings management does not significantly influence the company's
debt agency income.

conceptual framework
Based on the formulation of the problem, theoretical studies, relevant previous
research and discussion of the influence between variables, the framework for thinking about
this article is processed as follows.

Solvabilitas
 

Debt to Equity Pajak Penghasilan

Ratio Badan Terutang
 

Manajemen Laba
 

Figure 1
conceptual framework

conceptual framework picture above, Solvability, Debt to Equity Ratio, and Profit
management effect on Corporate Income Tax Payable. Apart from these three exogenous
variables that affect corporate income tax payable, there are several other variables that
influence them, namely:
a) Gross Profit Margin :(Sa’adah & Nur’ainui Tyas, 2020; Vindasari, 2019)
b) Operating costs:(Vindasari, 2019)

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c) Return on Assets:(Digdowiseiso, 2021)

d) Current Ratio :(Sa’adah & Nur’ainui Tyas, 2020)

CONCLUSIONS AND RECOMMENDATIONS

Conclusion
Based on the theory, relevant articles and discussion, hypotheses can be formulated
for further research:
1. Solvency has an effect on Corporate Income Tax Payable .
2. The Debt to Equity Ratio affects the Corporate Income Tax Payable. .
3. Profit Management has an effect on Corporate Income Tax Payable. .

Suggestion
Based on the conclusions above, the suggestion in this article is that there are still
factors such as earnings management, the debt to equity ratio does not fully have a
significant effect on Corporate Income Tax, therefore further studies are still needed to find
out what factors only those that can affect Corporate Income Tax outside of the variables
examined in this article. These other factors can be in the form of Gross Profit Margin ,
Operating Costs, Return on Assets and Current Ratio .

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