Real Earnings Management Sine Qua Non Book-Tax Differences in Tax Avoidance of Mining Sector Companies in Indonesia

This study aims to prove the effect of book income that can be manipulated through real earnings management activities on book-tax differences that appear to be interrelated but have not been widely studied. Researchers want to prove the coupling relationship (sine qua non) between real earnings management and book-tax differences based on rational choice theory as the main theory. Tests were conducted on 43 sample companies in the mining sector listed on the Indonesia Stock Exchange in 2018–2021. The analytical method used is panel data regression with the help of EViews (Econometric Views) version 12. The results prove that there is an effect of abnormal cash flow and abnormal discretionary expenses on book-tax differences, while abnormal production costs have no effect. Furthermore, the same result is also obtained when the reverse test is conducted, namely book-tax differences in real earnings management. The reciprocal test gives the result that book-tax differences affect abnormal operating cash flows and abnormal discretionary expenses but do not affect abnormal production cots. Meanwhile, the alignment of the reciprocal relationship between abnormal cash flow operations and abnormal discretionary expenses to book-tax differences shows the relationship (sine qua non) between real earnings management and book-tax differences. The contribution of this research proves that book-tax differences are the output of real earnings management, so the amount can be used as an indicator if a company manipulates earnings. Therefore, it is important for the government, especially the Directorate General of Taxes as a policymaker to start considering the amount of book-tax differences in a certain range that is permitted for companies. In addition, it can be followed up by issuing additional tax regulations if needed to minimize tax avoidance.