Tax Incentives and Investment Policy: Balancing Competitiveness and Tax Justice

Abstract

Tax incentives are commonly used by developing countries to attract foreign investment, yet their implications for tax justice and fiscal sustainability remain controversial. This paper evaluates Indonesia’s tax incentive regime using a legal and policy analysis framework. The study assesses the effectiveness, transparency, and distributive consequences of investment-related tax incentives. The findings indicate that while incentives may influence investment decisions at the margin, they often result in significant revenue losses without clear developmental benefits. This paper contributes to the global tax justice debate by highlighting how tax competition pressures can erode the fiscal capacity of developing countries. Indonesia’s experience illustrates the need for evidence-based incentive design and greater international coordination to prevent harmful tax competition. The study offers policy insights relevant to emerging economies seeking to balance competitiveness with equitable revenue mobilization.