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The 2008 Corporate Income Tax Reform and Its Contribution to Poverty Reduction in Indonesia

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  • Teguh Dartanto

    ()
    (Institute for Economic and Social Research (LPEM FEUI), Faculty of Economics, University of Indonesia)

Abstract

The CIT reform enacted by Law No.36 of 2008 cuts maximum tax rates from 30 per cent to 25 per cent and offers some incentives for business in Indonesia. This study aims at measuring the impacts of 2008 CIT reform on tax revenue and poverty. The 2008 CIT reform supported with the administrative reforms and the 2008 tax amnesty policy has increased new corporate tax payers by 422,407 and tax revenue by 53.95 per cent during 2009 to 2011. Further, the simulation result of CGE-Microsimulation shows that cutting the CIT rate from 30 per cent to 25 per cent will attract IDR 41.77 trillion of new investments, create 441,910 new job opportunities, boost 1.46 per cent of economic growth, decline 1 per cent of consumer price index, and raise averagely 1.5 per cent of wage rates. These macroeconomic changes contribute significantly to lift 1.88 million people (0.898 per cent) out of poverty.

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Bibliographic Info

Paper provided by Faculty of Economics, University of Indonesia in its series Working Papers in Economics and Business with number 201203.

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Length: 23 pages
Date of creation: Apr 2012
Date of revision: Apr 2012
Handle: RePEc:lpe:wpecbs:201203

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Keywords: Corporate Income Tax Reform; CGE; Microsimulation; Poverty; Indonesia;

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  1. Sinn, Hans-Werner, 1994. "How Much Europe? Subsidiarity, Centralization and Fiscal Competition," Scottish Journal of Political Economy, Scottish Economic Society, vol. 41(1), pages 85-107, February.
  2. Richard M. Bird & Eric M. Zolt, 2005. "Redistribution via Taxation: The Limited Role of the Personal Income Tax in Developing Countries," International Tax Program Papers 0508, International Tax Program, Institute for International Business, Joseph L. Rotman School of Management, University of Toronto.
  3. Gomes, Pedro & Pouget, Francois, 2008. "Corporate tax competition and the decline of public investment," Working Paper Series 0928, European Central Bank.
  4. Ruud A. de Mooij & Sjef Ederveen, 2005. "Explaining the Variation in Empirical Estimates of Tax Elasticities of Foreign Direct Investment," Tinbergen Institute Discussion Papers 05-108/3, Tinbergen Institute.
  5. Norman Gemmell & Oliver Morrissey, 2005. "Distribution and Poverty Impacts of Tax Structure Reform in Developing Countries: How Little We Know," Development Policy Review, Overseas Development Institute, vol. 23(2), pages 131-144, 03.
  6. Cecilia Llambi & Silvia Laens & Marcelo Perera & Mery Ferrando, 2011. "Assessing the Impact of the 2007 Tax Reform on Povert and Inequality in Uruguay," Working Papers PMMA 2011-14, PEP-PMMA.
  7. Arnold C. Harberger, 1962. "The Incidence of the Corporation Income Tax," Journal of Political Economy, University of Chicago Press, vol. 70, pages 215.
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