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The Impact of Deferred Tax and Tax-to-Book Ratio on Financial Performance of the Sharia Commercial Banks in Indonesia

Author

Listed:
  • Busra

    (Lhokseumawe State Polytechnic, Lhokseumawe, Indonesia)

  • Yuli Anisah

    (Lhokseumawe State Polytechnic, Lhokseumawe, Indonesia)

  • Yeni Irawan

    (Lhokseumawe State Polytechnic, Lhokseumawe, Indonesia)

  • Syarifudin

    (Gajah Putih University, Takengon, Indonesia)

  • Hayatun Nufus

    (Lhokseumawe State Polytechnic, Lhokseumawe, Indonesia)

Abstract

Measuring financial performance by analyzing factors affecting profit is an important component of financial management. The role of profit in Sharia banking is not only limited to determining good or bad financial performance but also determines how much tax must be paid by bank to the state. Taxes for the government are a source of income but for Sharia bank a tax expenditure is a cost that will reduce the profit account in the income statement. This study aims to determine the effect of deferred tax and tax-to-book ratio on financial performance of the Sharia Commercial Banks in Indonesia. 10 Sharia Commercial Banks represented the sample in this study and were purposefully selected based on consideration of the following criteria: a) bank has published annual financial reports for the 2014-2020 period; b) bank has the recognition of deferred tax expenses and benefits and has an explanation of taxation in the notes to the financial statements; c) bank reported the value of net income and total assets by publishing the audited financial statements. The panel data used for the analysis covers the period 2014-2020. Before testing the model, the assumption tests performed were the normality test, multicollinearity test, and heteroscedasticity test. The data analysis technique uses panel data regression analysis with the selected model - Fixed Effect Model with the Hausman test approach. The results of this study show that the deferred tax variable has a negative and significant effect on financial performance (ROA). In contrast, the tax-to-book ratio does not influence financial performance. This situation is caused by the Sharia Commercial Banks in Indonesia experiencing the burden of deferred tax. In addition, due to the amount of deferred tax expense that Sharia Commercial Banks must issue, this will reduce net profit. As a result, the banks' financial performance decreases as measured by return on assets. Thus, management of the Sharia commercial banks in Indonesia should consider that the imposition of tax payable has implications for reducing financial performance.

Suggested Citation

  • Busra & Yuli Anisah & Yeni Irawan & Syarifudin & Hayatun Nufus, 2023. "The Impact of Deferred Tax and Tax-to-Book Ratio on Financial Performance of the Sharia Commercial Banks in Indonesia," Oblik i finansi, Institute of Accounting and Finance, issue 2, pages 147-152, June.
    • Handle: RePEc:iaf:journl:y:2023:i:2:p:147-152
    DOI: 10.33146/2307-9878-2023-2(100)-147-152
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    References listed on IDEAS

    as
    1. Graham, John R. & Raedy, Jana S. & Shackelford, Douglas A., 2012. "Research in accounting for income taxes," Journal of Accounting and Economics, Elsevier, vol. 53(1), pages 412-434.
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    More about this item

    Keywords

    deferred tax expenses; tax-to-book ratio; financial performance; Sharia Commercial Bank; return on assets;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies

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