The Impact of Foreign Direct Investment and Gross Domestic Product on Indonesian Tax Revenue: Panel Data analysis For The Period 2005-2015

  • Jefry Batara Salebu
Keywords: Tax Revenue, Foreign Direct Investment, Gross Domestic Product, Panel Data, Fixed Effect Model

Abstract

This study analyzes the effect of foreign direct investment (FDI) and Gross Domestic Product (GDP) on Tax Revenue in Indonesia. Panel data of 9 sectors for the period 2005–2015 obtaining a balanced panel of 99 observations are used in the empirical estimation. The Fixed Effect Model is the best model based on redundant fixed effect test and Correlated random effect -Hausman test to find the significant impact of FDI and GDP on Tax Revenue. Furthermore, the classical assumption test was performed with no multicolinearity and free from violation of heterocedasticity assumption. The empirical results show strong evidence that FDIG has a significant and positive influence on TRG while GDPE has a significant and negative effect on TRG. Based on the result of the regression, it could be said that FDI will boost tax revenue in Indonesia in the long run. However, it was found that the increase in GDP has a significant negative effect on tax revenues which shows evidence that the increase in GDP is not followed by an increase in tax revenue. Some supports from the government of Indonesia are needed to attract FDI to invest in Indonesia, for example by providing attractive tax incentives, and to implement the Tax Reform on a sustainable basis to anticipate the practice of base erosion and profit shifting (BEPS) and to elevate taxpayer compliance in order to generate optimal tax revenue.

Published
2018-11-09
How to Cite
Salebu, J. (2018). The Impact of Foreign Direct Investment and Gross Domestic Product on Indonesian Tax Revenue: Panel Data analysis For The Period 2005-2015. Simposium Nasional Keuangan Negara, 1(1), 603-627. Retrieved from https://jurnal.bppk.kemenkeu.go.id/snkn/article/view/193