International Journal of Multidisciplinary Research and Publications ISSN (Online): 2581-6187 42 Aisyah Chairunnisa Fatihah Farizky and Erma Setiawati, “The Effect of Profitability, Company Size, Institutional Ownership, and Political Connection on Tax Avoidance,” International Journal of Multidisciplinary Research and Publications (IJMRAP), Volume 5, Issue 12, pp. 42-46, 2023. The Effect of Profitability, Company Size, Institutional Ownership, and Political Connection on Tax Avoidance Aisyah Chairunnisa Fatihah Farizky 1 , Erma Setiawati 2* 1 Faculty of Economics and Business, Muhammadiyah University of Surakarta, Surakarta, Indonesia 2 Faculty of Economics and Business, Muhammadiyah University of Surakarta, Surakarta, Indonesia Email address: aisyahfarizky5@gmail.com, erma.setyowati@ums.ac.id *Corresponding Author Abstract— This study aims to clarify the impact of profitability, company size, institutional ownership, and political connection on tax avoidance of manufacturing companies listed on Indonesia Stock Exchange (IDX) from 2019 to 2021. Tax avoidance is expressed in Cash Effective Tax Rate (CETR). The study was conducted using quantitative methods and secondary data. Samples were collected from a total of 73 companies in the manufacturing sector using purposive sampling method and processed with SPSS. The analysis method of this study uses descriptive statistical analysis and multiple linear regression analysis. As a result, profitability affects tax avoidance, company size does not affect tax avoidance, and institutional ownership does not affect tax avoidance, while political connection affects tax avoidance. Keywords— Profitability, company size, intitutional ownership, political connection, tax avoidance. I. INTRODUCTION Indonesia is one of the developing countries as a consequence the development of the country requires great efforts. Development takes place in many scopes to increase the welfare and prosperity of local communities, and Indonesia needs significant financial support to carry out this development according to its plans and goals. Taxes are one of the largest sources of government finance. Because taxes have no direct reciprocity and serve the needs of the state, they are compulsory contributions by law to individuals and businesses. Tax revenue comes from a variety of sources, including personal income taxes levied on individual employees, entrepreneurs, and corporations. The government expects taxpayers to contribute as much as possible to maximize their efforts to raise large sums of money. Nonetheless, many taxpayers, especially corporate taxpayers, still believe that paying taxes can undermine profits from a company’s performance. From a corporate taxpayer’s point of view, the higher tax, the lower the profit, and vice versa. The lower the tax paid, the higher the profit. This encourages company management to engage in tax avoidance practices that they believe can reduce their corporate tax liability. Tax avoidance is a tax avoidance strategy used by business owners to reduce their tax burden and keep corporate profits high. These efforts were made because they were deemed legitimate or because they did not deviate from tax rules by exploiting loopholes or weakness in them. As there are no regulations or laws prohibiting taxpayers from avoiding tax, tax avoidance is considered to be non-deviant and profitable. However, the government hopes that taxpayers will not do this as it will lead to a reduction in government revenues. Tax avoidance can be influenced by several factors, including profitability, company size, institutional ownership, and political connection. Profitability is an expression of a company’s financial achievement in generating earnings from asset management, often referred to as Return on Assets (ROA). ROA is expressed as a percentage. Higher ROA values indicate better company performance and vice versa. Company size reflects management’s ability to make tax decisions. Companies with good asset management typically take advantage of the depreciation pf assets they own to reduce their tax burden. In several companies, the presence of associations may encourage management tax avoidance. The greater institutional ownership owned by the institution; the management will be under pressure to carry out tax avoidance aimed at maximizing company profits. Apart from these factors, political connections can also affect tax avoidance. The business world is closely related to politics because the success pf a business cannot be separated from political influence. A company is said to be politically connected when the company has political ties to establish business relations with politicians or the government in certain ways. Based on the above background information the researchers conducted a study on “The Effect of Profitability, Company Size, Institutional Ownership, and Political Connection on Tax Avoidance” II. LITERATURE REVIEW AND HYPOTHESIS Agency Theory This theory shows that there is a relationship between two economic actors who have different characteristics, goals and interests, namely a particular of principal (owner) and agent (manager) (Lastyanto & Setiawan, 2022). Differences in interests that occur can lead to conflicts of interest. In this case the conflict of interest occurs in the behavior of the agent who must be responsible for maximizing profits for the principal, on the other hand the agent has a personal interest in maximizing his welfare. These problems cause the agent or company management to distort information by applying