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

Author

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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.

Suggested Citation

  • Teguh Dartanto, 2012. "The 2008 Corporate Income Tax Reform and Its Contribution to Poverty Reduction in Indonesia," Working Papers in Economics and Business 201203, Faculty of Economics and Business, University of Indonesia, revised Apr 2012.
    • Handle: RePEc:lpe:wpecbs:201203
    as

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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Corporate Income Tax Reform; CGE; Microsimulation; Poverty; Indonesia;
    All these keywords.

    JEL classification:

    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • I32 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Measurement and Analysis of Poverty
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs

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