The Impact of Income Tax Facility Policies on Investment in Specific Business Sectors and Tax Allowances: The Case of Indonesia

Darol Arkum (), Mudrajad Kuncoro () and Ghardapaty Ghaly Ghiffary ()
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Darol Arkum: Department of Public Administration
Mudrajad Kuncoro: Universitas Gadjah Mada, Faculty of Economics and Business
Ghardapaty Ghaly Ghiffary: IPB University, Department of Statistics and Data Science

A chapter in Proceedings of the 12th Gadjah Mada International Conference on Economics and Business (GAMAICEB 2024), 2025, pp 217-233 from Springer

Abstract: Abstract Government Regulation Number 78 of 2019 in Indonesia, which provides income tax facilities (tax allowance) for investments in specific business sectors or regions, is evaluated in this study for its effects on community welfare and regional economic growth. The study uses a quantitative methodology to assess the effects of economic and geographic factors on changes in open unemployment rates and economic growth before and after the policy’s implementation. It examines the disparate impacts of the 2019 tax allowance policy on provincial unemployment rates, economic growth, and regional investment distribution. The analysis includes data on domestic and foreign investments, unemployment, and economic growth from 34 provinces. Spatial analysis revealed that West Java had the highest foreign investment before the policy, while West Sulawesi had the lowest. This distribution remained unchanged after the policy. Maluku experienced the highest economic growth following the policy, while Bali had the lowest. Between 2019 and 2021, twelve provinces, mostly in Sulawesi, saw economic growth rates above the national average of 2.6%, while 22 provinces, primarily in Papua and Nusa Tenggara-Bali, had growth rates below this average. Banten had the highest unemployment rate before the policy, and Bali the lowest. After the policy, West Java had the highest unemployment rate, while West Sulawesi had the lowest. The results imply that Indonesia’s tax allowance policy has affected regional investments, economic growth, and unemployment rates.

Keywords: Investment; Unemployment; Economic Geography (search for similar items in EconPapers)
Date: 2025
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DOI: 10.2991/978-94-6463-692-5_12

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