Corporate Social Responsibility Disclosure , Environmental Performance , and Tax Aggressiveness

Corporate Social Responsibility Disclosure, Environmental Performance, and Tax Aggressiveness

This study aims to examine the influence of the corporate taxpayers' level of CSR disclosure and environmental performance on the level of tax aggressiveness.This study took a sample of non-financial companies listed on the Indonesian Stock Exchange during 2009-2012.This study shows that the corporate taxpayers' level of CSR disclosure has significant negative effect towards the tax aggressiveness.It means the higher the level of the CSR disclosure, the lower the company's tax aggressiveness.This study also proves that good environmental performance will strengthen the negative effect of CSR disclosure on tax aggressiveness.The assessment of environmental performance is conducted by the Ministry of Environment as independent party.It means that the higher the score of company's environmental performance, the higher the commitment to pay taxes.This study supports the view that more socially responsible corporations are likely to be less tax aggressive.

INTRODUCTION
Corporate Social Responsibility (CSR) is a concept that started growing since the 1950s.Howard Bowen, American economists in 1953 stated that a businessman should have the responsibility to promote hope, purpose and values in society (Hartanti 2006).Some views relate the concept of CSR and corporate taxes because CSR is corporate expenditure for the benefit of stakeholders and taxes paid by the company is also the expenses paid to the government for the benefit of society.
Because of similar purpose of this expenditure, Avi-Yonah (2008) stated that the determination of corporate tax policy is influenced by the company's perspective on corporate responsibility to the community in the form of CSR.
The relation between corporate's perspective on CSR and corporate's policies on taxes generate some research linking CSR and tax avoidance (Huseynov and Klamm, 2012;Sikka 2010;Hasseldine and Morris 2012), CSR and tax aggressiveness (Lanis and Richardson 2012) and company's taxes motivation in CSR (Carrol and Joulfaian 2005).These studies resulted in mixed findings.Huseynov and Klamm (2012) found that companies that have good relationship with community tend to not doing tax avoidance, while companies that do not have a good relationship with the community tend to do tax avoidance.Sikka (2010) found that a company with good CSR turned out tax evasion.However, study conducted by Lanis and Richardson (2012) on CSR disclosure stated that a company with good disclosure will have low level of tax aggressiveness.Lanis and Richardson (2012) stated that the term aggressiveness of tax, tax avoidance and tax management has the same meaning.From the findings above, there is a consensus that company's policies on CSR affect the amount of taxes paid by the company.However, the results still inconclusive , whether company's CSR policy has positive or negative effect on the payment of corporate taxes.
In Indonesia, there were pros and cons whether

Corporate Social Responsibility
Various parties explain their views on CSR.Elkington (2007) proposed the concept of the triple bottom line (people, profit, planet).Holme and Watts (2006) stated that CSR is the commitment of business to act ethically, contribute to economic development, and improve the quality of life of workers, local communities and society.
One of the most influential literatures in CSR is written by Carroll (1979) and refined in 1991 that proposed the CSR pyramid which consist of economic, legal, ethical and philanthropic.The meaning of the pyramid is a company that engage in CSR will work to generate profit, obey the law, behave ethically and be good company.
According to Avi-Yonah (2008) and Schon (2008), a company is a real-world entity that must survive in a competitive business environment and should be associated with many entities and individuals.
A company will develop policies, strategies and operations that are not merely centered on shareholder welfare but also for stakeholders (government, politicians, trading communities, employees, suppliers and customers) and public community.Porter and Kramer (2006) stated that the company that has high social responsibility will have good image, strong brand and increasing in the value of company.
It can be concluded that CSR not only includes the responsibility to stakeholders and public, but also the implementation of good business ethics by the company.In Indonesia, various studies have linked CSR with a variety of variables, such as financial performance (Wijayanti and Prabowo 2011) and earnings respond coefficient (Sayekti and Wondabio 2007).
Tax Aggressiveness Lanis and Richardson (2012) stated that the aggressiveness of the tax, tax evasion and tax management is a term that refers to the same meaning.Frank et al . (2009) defines tax aggressiveness as management efforts to reduce taxable income through tax planning activities via legal, illegal, and in between (gray area).Hanlon and Hetzman (2010) defines tax evasion as a tax reduction and highlight the broad scope of tax evasion, the tax management, tax planning, tax aggressiveness, tax evasion and tax sheltering.
Additionally, Hanlon and Hetzman stated that positive book-tax difference (BTD) and lower effective tax rate reflects the tax evasion behavior.
On the one hand, the tax is an expense and the company is trying to do the management of tax or tax planning to reduce costs, increase profitability and shareholder value.On the other hand, companies involved in the tax shelter or tax evasion and make decisions based solely on the desire to reduce tax referred to as a company that does not have a social responsibility (Schon 2008).
One way to do a tax management is to use the services of a tax consultant.Research Mills (1998) showed that companies that use the services of consultants have a low effective tax rate.Due to tight connection between firm's view of CSR and corporate tax policy, some researchers relate CSR and tax avoidance.Huseynov and Klamm (2012) found that firms having good public relationship tend to not make any tax avoidance, otherwise the ones who don't tend to make some.Lanis and Richardson (2012)  Since 1995, the Ministry of Environment has evaluated firms' environmental performance in In-donesia.Some researchers investigate the association between environmental performance and the level of CSR disclosure.Suratno (2006) stated that there is positive relationship between firm's PROPER rating and its CSR disclosure.Al Tuwajiri and Sulaiman (2003) stated that there is positive relationship between firm's environmental performance rating and its CSR disclosure.Based on findings above, we can conclude that the companies with good environmental performance will report high level disclosure of CSR to explain its CSR activities.We can also conclude that the companies with good environmental performance have higher commitment to do the CSR activities and it reflected in their CSR disclosure.Their commitment will prevent them to do the tax aggressiveness.So, it is predicted that good environmental performance will strengthen the negative effect of CSR disclosure on tax aggressiveness.

CSR and Tax Regulation in Indonesia
Based on literatures above, hypothesis that could be developed is as below: H2: Environmental performance strengthens negative effect of firm's Corporate Social Responsibility disclosure towards corporate tax aggressiveness.

Sample and Research Data
This research uses sample of listed firms in BEI (Indonesia Stock Exchange).The data for this research is retrieved from:

Listed Period of Firm (AGEPUB)
Firm that has just been listed on stock exchange would be looked forward to have good financial performance, so that the firm would tend to apply tax aggressiveness.(Lanis and Richardson 2012).
Firm that has long been listed would be more conform to the regulation in the stock exchange (Beasley 1996).AGEPUB is measured by listing period of the firm on BEI (Indonesia Stock Exchange).AGEPUB is predicted to negatively affect tax aggressiveness (Current ETR).

Block Holder (BHD)
Shleifer and Vishny (1986)  From 18 sample firms, mean of PROPER rating of firms attending PROPER is 3.13.From all firms listed on BEI (Indonesia Stock Exchange), the number of firms having full PROPER rating for three years is 18 firms with average PROPER score of 3. Score 3 denotes that those firms acquire blue rating, in which is the third rating below gold and green.Blue rating implies that firms have put serious efforts on entailed environmental management in accordance with prevailing provisions or regulations.

Statistical Test Result of Hypothesis 1
Regression test was undertaken with panel data by using eviews.This research used Chow Test to determine whether data processing is better

Sampel Description Jumlah Hypothesis 1
Non-financial companies listed on the Stock Exchange in 2012 379 Incomplete company financial data incomplete annual report data from 2009-2012 (141) Companies that have negative earnings before tax, tax is now zero, the current tax ratio above 1 and their tax refund (49)  Hausman Test, the result showed that the model of hypothesis 2 using Random Effect.Table 4 provides regression result of hypothesis 2.
From regression result without moderating, it is noticed that PROPER negatively influence current ETR exhibits that the higher the PROPER rating, the lower the tax aggressiveness.This demonstrates that firms holding decent environmental performance would be more ethical and tend to not exercise tax avoidance.This result also support the view that more responsible and care the company on their environment, the less the tax aggressiveness.
Regression result from disclosure level of CSR moderated with environmental performance shows negative coefficient means that the higher companies should be required to engage in CSR activities.The pros and cons arose when the government issued Act No. 40 of 2007 on Limited Liability Company that requires company conduct its business activities in areas related to natural resources to implement social and environmental responsibility.The opponents argue that the company already pays taxes and the tax is spending for the benefit of society.Additional cost of engaging in CSR will become the company's expense and reduce the competitiveness of companies (Djimanto 2007).But in the end the government issued Act No. 36 of 2008 which states that expense on CSR activities can be deducted from taxable income.The act states that the amount of taxable income for domestic taxpayers is determined based on gross income less costs to acquire, collect, and maintain income, including the cost of CSR such as donations to the national disaster, donations for the research and development carried out in Indonesia, the cost of construction of social infrastructure, donations for educational facilities, and donations for developing sport activities.Further explanation about CSR expenses that can be deducted from gross income is regulated in Government Regulation No. 93 in 2010.However, although at first there are pros and cons, CSR development in Indonesia is increasing.As an illustration, a company that publishes sustainability reporting reports increased by 100% over the 6 years from 2005 to 2011 (ISRA 2011).The Government through the Ministry of Environment also increases the supervision of the company which has impact on the environment using tool which is called the Environmental Performance Rating in Environmental Management (acronym in Indonesia is PROPER).From 2009 to 2011 PROPER participants increased 45% from 690 to 995 companies.The degree of compliance of PROPER participants in 2011 had reached 66% means that 66% of companies already meet the criteria of compliance (PROPER Report 2011).The lack of research in Indonesia that investigate the influence of disclosure of CSR performance and score of environmental performance on the level of corporate tax aggressiveness raises motivation to examine how the influence of the level of CSR disclosure and environmental performance of companies on the level of tax aggressiveness.
Government has started to set deductible Corporate Social Responsibility (CSR) expenses from company's income by issuing PP (Government Regulation) No. 93 Year 2010.Forms of CSR expenditures which are tax deductible expenses are as follows: a. Donation for national disaster management, b.Donation for research and development.c.Donation for educational facility, which is a donation of educational facilities which are distributed through educational institutions; d.Donations in order to develop the sport.e. Cost of social infrastructure development which are costs incurred for the purpose of developing infrastructure for public and nonprofit interests.CSR expenditure in form of donation and/or any expenses as mentioned above could be deducted from gross income with some requirements.The amount of donation and/or social infrastructure development expenses that could be deducted from gross income as referred to Article 1 for 1 (one) year are restricted to not exceed 5% of previous Tax Year's fiscal net income.Program of Firm's Performance Rating in Environmental Management Since 1995, the Ministry of Environment has carried through Program of Firm's Performance Rating in Environmental Management (Program Penilaian Peringkat Kinerja Perusahaan dalam Pengelolaan Lingkungan/PROPER) as an effort to monitor environmental performance executed by companies.PROPER's criteria consist of two parts i.e. criteria of compliance rating and criteria of Beyond Compliance Rating (PERMENLH/ Minister of Environment Regulation No. 5 Year 2011).For compliance rating, aspects assessed are compliance to: 1) requirement of environment document and its reporting, 2) control of water pollution, 3) control of air pollution, 4) regulation of waste management, and 5) likelihood of land damage.Beyond compliance rating is more dynamic as adjustable to technology development, best practice of environment management application and global environment issues, consists of: 1) assessment of environment management system, 2) assessment of resource utilization and 3) assessment of society utilization.CSR and Tax AggressivenessAvi-Yonah (2008) claimed three firm's points of view to CSR affecting corporate tax policy.Such points of view are the artificial entity view, the real entity view and the aggregate view.The artificial entity view sees firm owing its country so that being involved in CSR is its mission and paying tax is one of the ways to fulfill its CSR obligation.The real entity view sees firm having rights and obligations as if society so that firm is suggested to exercise CSR.For tax payment, firm tends to obey the duty to pay and is not involved in overly aggressive tax management.The aggregate or nexus of contract view sees CSR as prohibited activities since it would direct managers to become irresponsible to their shareholders that have selected them.In this view, firm tries to maximize shareholders' profit by lessening corporate tax to the minimum level.Avi-Yonah (2008) declared that, given any views held by firms, they are not expected to have strategic tax behavior merely designed for tax reduction.It is because aggressive tax behavior would cause country to experience revenue slump that further influence the construction of public facilities.Avi-Yonah (2008) ascertained that firm's decision about the extent of tax reduction would be affected by firm's attitude towards CSR.
in this study are:Model 1 (for hypothesis 1)CETR it = a + b 1 CSRD it + b 2 SIZE it + b 3 LEV it + b 4 ROA it + b 5 AGEPUB+ b 7 MTOBOD it + b 8 BHD it + b 9 INV it + b 10 MKTBK it + b 11 INDSEC+ e itModel 2 (for hypothesis 2) ETR it = a + b 1 CSRD it + b 2 KL it + b 3 CSRD*KL+ b 4 SIZE it + b 5 LEV it + b 6 ROA it + b 7 AGEPUB+ b 8 MTOBOD it + b 9 BHD it + b 10 INVINT it + b 11 MKTBK it + b 12 divided by total asset MKTBK : Market value of equity divided by book value of equity INDSEC : Dummy variable industrial sector.

Table 1 .
Technique of Sample Selection

Table 4 .
Regression Results for Hypothesis 2 CSR disclosure and environment performance, the lower the tax avoidance.This issue attests that good environmental performance strengthens the negative effect of CSR disclosure on tax aggressiveness.This evidence affirms that the company which high level disclosure of CSR and based on evaluation proven to has a good environment performance, has less tax aggressiveness behavior.Based on this result, we can recommend the government to conduct the evaluation on the company's environment and social activities performance with the purpose to verify the CSR report.