Presumptive taxation, corruption, and firm productivity in Indonesia

This research aims to evaluate the impact of a policy change of presumptive tax scheme and corruption on firm performance in Indonesia. The central government enacted a new presumptive tax regulation targeting small and medium enterprises (SMEs) in 2013. The policy intends to attract small businesses to pay income tax and promote formalization. Additionally, we also assess the impact of corruption, comparing the effect of taxation, on firm productivity. Exploiting the panel data from WBES Indonesia in 2009 and 2015, along with fixed-effect regression models, we find that the presumptive tax scheme does not significantly have an impact on firm productivity. Although, it is confirmed that corruption is negatively and significantly affects firm productivity. This study also affirms that corruption has a greater influence, compared to taxation, on firm productivity.