International Journal of Finance & Banking Studies
IJFBS
Vol.3 No.1, 2014 ISSN: 2147-4486 available online at www.ssbfnet.com

Indonesian And Australian Tax Policy Implementation In Food And
Agriculture Industry

Hanggoro Pamungkas a, Maya Safira Dewi b, Yunita Anwar c, Martin Surya Mulyadi d

a,b,c,d

Bina Nusantara University, KH Syahdan 9, Jakarta 11480, Indonesia

Abstract
Tax policy is one of the most important policy in consideration of investment development in certain industry.
Research by Newlon (1987), Swenson (1994) and Hines (1996) concluded that tax rate is one of the most important thing considered by investors in a foreign direct investment. One of tax policy could be used to attract foreign direct investment is income tax incentives. The attractiveness of income tax incentives to a foreign direct investment is as much as the attractiveness to a domestic investment (Anwar and Mulyadi, 2012).
In this paper, we have conducted a study of income tax incentives in food and agriculture industry; where we conduct a thorough study of income tax incentives and corporate performance in Indonesian and Australian food and agriculture industry. Our research show that there is a significant influence of income tax incentives to corporate performance. Based on our study, we conclude that the significant influence of income tax incentives to Indonesian corporate performance somewhat in a higher degree than the Australian peers. We have also concluded that
Indonesian government provide a relatively more interesting income tax incentives compare to Australian government.
However, an average method of net income –a method applied in Australia– could be considered by Indonesian government to avoid a market price fluctuation in this industry.
Keywords: tax policy; income tax incentives; food and agriculture industry; tax rate; foreign direct investment; domestic investment.
© 2014Published by SSBFNET
1. Introduction
To support the development on certain industry, government usually issue a new policy. There are several kind of government policy which could be used and issued, ie: investment policy and tax policy. Tax policy is one of the most important thing to be considered in certain industry development. In considering a foreign direct investment, investors consider tax rate as one of the most important component (Newlon, 1987; Swenson, 1994; Hines, 1996). Location is also important determinant of a foreign direct investment (Ondrich and Wasylenko, 1993).

a

Corresponding author.Martin Surya Mulyadi.

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Pamungkas et al. /International Journal of Finance & Banking Studies Vol 3, No 1, 2014 ISSN:2147-4486

Income tax incentives are one kind of tax policy that could be used in effort to increase investment. Income tax incentives are a policy to change tax structure with several methods (Tung and Cho, 2001; Mulyadi, Anwar and
Siagian, 2012). One example of income tax incentives which oftenly used is a reduction in tax rate as documented by
Mintz and Smart (2004) in their research in Canada.
Another thing has to be accounted for is high cost of tax obligation, especially for a big business (Slemrod and
Blumenthal, 1996). Therefore, there is no doubt that tax policy (in this case, income tax incentives) need to be seriously considered to attract foreign direct investment. Furthermore, this income tax incentives is also like a doubleedge sword: it is not only attracting foreign direct investment but also attracting domestic investment as well (Anwar and Mulyadi, 2012).
Food and agriculture industry is one of major industry both in Indonesia and Australia. Recent issues of food and agriculture industry was a deal by WTO Ministerial in Bali this December, which specifically dealing with food-stock holding and the price benchmark. Of course, this WTO deal also show the importance of government support for food and agriculture industry development.
Considering the importance of food and agriculture industry in Indonesia and Australia,