THE EFFECT OF CORPORATE INCOME TAX INCENTIVE ON FOREIGN DIRECT INVESTMENT IN INDONESIA

Abstract

The Effect Of Corporate Income Tax Incentive On Foreign Direct Investment In Indonesia. This study examines the effects of corporate income tax incentive (CIT incentive) on foreign direct investment (FDI) at the regional level in Indonesia. The panel data of FDI for seven major regions in Indonesia (Sumatra, Java, Kalimantan, Sulawesi, Bali Nusa Tenggara Barat and Nusa Tenggara Timur, Maluku, and Papua) from 1990 to 2012 were used and fixed-effect regression estimation was applied. The estimation result found that tax holidays and investment tax allowances provide a positive impact with a statistically significant effect. On the other hand, accelerated depreciation shows a significant effect with a negative magnitude on FDI. These results suggest that the CIT incentive policy in Indonesia needs a more specifically targeted scheme considering regional conditions.