Tax Holiday and Foreign Direct Investment In Indonesia

Abstract

Tax Holiday and Foreign Direct Investment in IndonesiaForeign Direct Investment Inflows is important aspect of promoting economic growth and decreasing the unemployment rate. One of investment incentive applied in Indonesia is Tax Holiday. Meanwhile, research on tax holiday and their relation to foreign investment in Indonesia is still rare. This paper is aimed to measure the impact of Tax Holiday toward Foreign Direct Investment inflows in Indonesia. So, this study also compares the impact of tax holidays on 18 industries in Indonesia. The research found that the Tax Holiday incentive did not reach the expected target. Only 9 out of 18 business sectors affected by this policy, accounted for only 50% of its industrial target. The government's role is highly expected to evaluate the target of Tax Holiday, for example giving priority and adding incentives for industrial sectors that are clearly affected by the tax holiday policy.

FDI and Tax Policy: Evidence from Indonesia

“…The result of research conducted by Utami [9] is that the Tax Holiday facility offered by the Indonesian government is able to increase FDI inflows into Indonesia. Research conducted by Herdiyati and Wahyudi [26] also said that the Tax Holiday facility offered by the government can attract investors to invest in Indonesia. H2: Tax Incentive has a significance effect on Foreign Direct Investment in Indonesia.…”