AUDIT COMMITTEE CHARACTERISTICS, POLITICAL CONNECTIONS, AND TAX AVOIDANCE: WHAT ROLE DOES AUDIT QUALITY PLAY AS A MODERATE OF THE RELATIONSHIP?

Abstract

ABSTRACT
Taxes are the main revenue sources to support a government’s economic development. The aims of this study was to examine on how audit committee characteristics and political connections can influence tax avoidance practices. This study also uses audit quality as a moderating variable to determine how audit quality plays a role in moderating the relationship between audit committee characteristics and political connections on tax avoidance. This quantitative research focuses on manufacturing firms that are registered on the Indonesia Stock Exchange from the period 2020-2023. This research uses moderated regression analysis (MRA) for analysed data. The sample used is purposive sampling technique with the final result being 443 companies. The result of this study indicate that the characteristics and political connections positively effect on tax avoidance practices. Another important result is that audit quality as a moderating variable can reduce the impact of audit committee characteristics on tax avoidance behavior, but audit quality in unable to influence the effect of political connections between tax avoidance practice. This study is underpinned by agency theory, which emphasizes the importance of mitigating information asymmetry that arise from conflicts of interest. The presence of competent auditors is regarded as a vital aspect of effective corporate governance. The results of this research aim to advise the Directorat General of Taxes on developing policies to reduce tax avoidance practice by enforcing stricter oversight of companies, particularly those companies with political ties, in order to enhance tax revenue.

Keywords: Audit Committee Characteristics, Political Connections, Audit Quality, Tax Avoidance