Abstract
Foreign 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.Keywords: Foreign Direct Investment; Investment Incentive; Tax Holiday.
Highlights
Foreign Direct Investment (FDI) has an essential role in the economy of a country
Models in the primary metal industry show the positive effect of the tax holiday on FDI, Coal Products Industry and Petroleum Refining, Pharmaceutical Industry, Chemical, and Traditional Medicines Products, Computer Industry, Electronic and Optical Goods, Electrical Equipment Industry; Machinery and Equipment Industry, Mining Supporting Service Activities; Rubber Industry, Rubber and Plastics Products; Motor Vehicle Industry, Trailer and Semi-Trailer; Other Transportation Equipment Industry; Repair and Installation of Machinery and Equipment; Procurement of electricity, gas, steam / hot water, and cold air; Civil Building Construction, and Information Service Activities
From the 18 industrial sectors targeted by the Tax Holiday policy, nine industrial sectors were significantly affected, namely the Base Metal Industry, Electrical Equipment Industry; Machinery and Equipment Industry, Mining Supporting Service Activities; Rubber Industry, Rubber and Plastics Products; Motor Vehicle Industry, Trailer and Semi-Trailer; Other Transportation Equipment Industry; Repair and Installation of Machinery and Equipment; Procurement of electricity, gas, steam / hot water, and cold air; Civil Building Construction, and Information Service Activities
Summary
Foreign Direct Investment (FDI) has an essential role in the economy of a country. According to Kok dan Ersoy (2009), PMA has an effect on income, production, employment, economic growth, and general development and welfare in the host country. The presence of PMA in Indonesia is one solution to reducing the unemployment rate in Indonesia. Compared to other ASEAN-5 countries (Singapore, Malaysia, Thailand, and the Philippines), the unemployment rate in Indonesia is the highest with 4.3%, followed by Singapore and Malaysia with 3.8% and 3.4% (World Bank, 2018). The increase in the inflow of FDI in Indonesia is an essential factor in supporting sustainable economic growth, in overcoming unemployment in Indonesia. In the second Quarter of 2019 (April to June 2019), investment in Indonesia absorbed as many as 255,314 workers, with the proportion of Foreign Direct Investment absorbing 114,161 workers and Domestic
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