Analisis Kebijakan

1. Analyzing Tax
Policies in Turkey
and Indonesia: A
Comparative Study
for Improved
Competitiveness and
Neutrality
Yunia Amelia
Bandırma Onyedi
Eylül Üniversitesi
2nd International
Symposium of Indonesian
Students in Turkiye, 2024

2. I. Introduction
 In this era of globalisation, tax policy is a crucial element
in shaping a country's economic competitiveness. Turkey
and Indonesia, as two countries with rapidly growing
economies, continue to strive to improve their tax policies
to enhance competitiveness and neutrality. Tax policy
plays an important role in shaping a country's
competitiveness and economic growth. Corporate taxes,
for example, can influence investors' investment decisions
and companies' location decisions, which in turn affect a
country's economic growth. In the context of globalisation,
countries may adjust their tax rates to attract international
capital and improve their competitiveness.

3.  A country's tax policy affects the International Tax
Competitiveness Index (ITCI) through the various
aspects assessed by the Index. The ITCI
measures how well a country's tax system
promotes sustainable economic growth and
investment by looking at more than 40 tax policy
variables in five categories: corporate income tax,
individual income tax, consumption tax, property
tax and cross-border tax rules.

4.  A competitive and neutral tax system is
considered ideal because it does not favour
consumption over saving, does not provide
special tax incentives for particular activities
of firms or individuals, and raises sufficient
revenue for government priorities with the
least economic distortion

5. Tax policies that affect ITCI rankings (Mengden, 2023b)
(Bénassy-Quéré et al., 2005):
 1. Corporate tax rate: Countries with lower corporate tax
rates and systems that only tax distributed profits, such as
Estonia, tend to perform better.
 2. Individual income tax: Tax systems with low flat rates
and few exemptions can improve competitiveness.
 3. Consumption tax: A broad consumption tax base with
low rates can be considered more competitive.
 4. Property tax: A property tax levied only on the value of
land, rather than on the value of assets or capital, can
improve a country's score.
 5. Cross-border tax rules: A territorial tax system that
avoids double taxation of profits earned abroad can
improve competitiveness.

6.  Turkey ranks 7th overall in the 2023 International
Tax Competitiveness Index (ITCI), up three places
from last year, indicating positive changes in its
tax policies that have improved its
competitiveness and neutrality in the global
economy. By analysing the tax policies of Turkey
and Indonesia, we can identify areas where
Indonesia could potentially adopt and modify its
policies to improve the competitiveness and
neutrality of its tax system

7. II. Theoretical Framework
 Tax policy, increased competitiveness and
neutrality, according to the study of the Fiscal
Policy Agency
A. Tax Policy
1. Basic principles of taxation
2. Taxation challenges
3. Strategies for improving tax performance

8. B. Improving competitiveness
1. Factors for improving competitiveness
 tax administration can improve competitiveness by
creating a favourable business environment.
Strengthening local taxing powers and giving regions
greater powers to optimise their own revenue potential,
in particular from local taxes and levies, can support
this.
 High taxpayer compliance is an important indicator of
an effective tax system and can improve
competitiveness. This compliance can be achieved
through improved governance and effective law
enforcement, which in turn can increase tax revenues
and reduce illegal tax practices.

9. C. Neutrality
Principle of tax neutrality
1. tax system should be designed and implemented
without bias or preference for particular groups or
economic activities
2. the tax system should not hinder fair competition
between economic agents
3. taxes should not interfere with the economic
decisions of individuals or firms.
This principle of neutrality is important for creating a
favourable business environment and promoting
sustainable economic growth. When the tax system
respects the principle of neutrality, it can help to create a
level playing field for all economic agents, which in turn
can improve competitiveness and efficiency.

10. III. Research methodology
 This research uses a comparative approach
to analyse tax policies in both Turkey and
Indonesia. Secondary data, policy analysis
and economic statistics are used to assess
key variables such as tax rates, investment
incentives and competitiveness indicators.

11. IV. Analysis of Taxation Policy
in Turkey
 Turkey's rise in the tax competitiveness rankings shows
that it has implemented tax policies that have improved
its competitiveness and neutrality. By analysing some
of Turkey's tax policies, Indonesia can learn from their
success and make necessary changes to its own tax
system. For example, Turkey may have implemented
tax policies that simplify the tax code, reduce tax rates,
provide incentives for investment and entrepreneurship,
and ensure fair and transparent tax administration.
These measures are likely to have contributed to
Turkey's increased competitiveness and neutrality in
the global economy.

12. The strengths of Turkey's tax system, which contributed to
its 7th place ranking in the 2023 International Tax
Competitiveness Index, include the following aspects
(Mengden, 2023):
 Territorial tax system: Turkey has a territorial tax
system that exempts foreign dividend income and
capital gains from taxation.Dividend income tax:
 The personal income tax on dividends in Turkey is
20 percent, which is lower than the OECD
average of 24 per cent;
 Allowance for Corporate Equity (ACE): Turkey
offers ACE, which overcomes the debt bias
inherent in the standard corporate income tax

13. Turkey has implemented several tax policy elements
that favour a competitive and attractive business
environment for foreign investment.
 Turkey has several distortionary property taxes with
separate levies for real estate transfers, estates and
financial transactions;
 Expanding incentives: Consider expanding incentives
for sectors that have the potential to be economic
drivers;
 Improve infrastructure: Focus on improving
infrastructure to support long-term competitiveness;
 International cooperation: Strengthen cooperation with
international organisations to understand and adopt
best practices.

14. To improve the competitiveness and neutrality of its tax
system, Indonesia could consider the following strategies
Conduct a comprehensive review and analysis of its tax
policies to identify areas for improvement;
Streamline and simplify the tax code to reduce complexity and compliance
costs for businesses and individuals;
Implement a tax system based on neutrality and economic efficiency, with a
focus on reducing distortions and barriers to investment and economic
growth;
Consider lowering tax rates to attract foreign investment and improve
economic competitiveness;
Explore the possibility of introducing tax incentives and exemptions that are
targeted, transparent, and aligned with specific policy objectives;
Invest in technology and digitalisation to improve tax administration and
increase the efficiency of tax collection and enforcement processes.
In conclusion, Indonesia can learn from the Turkish tax system to improve
the competitiveness and neutrality of its own tax system (Gaspar et al.,
2016).

15. V. Analysis of Taxation Policy
in Indonesia
 The following are some examples of tax policies in
Indonesia that reflect efforts to improve
competitiveness and neutrality: Development of Base
Erosion and Profit Shifting (BEPS): Introduction of
transfer pricing rules: Indonesia has adopted stricter
transfer pricing rules in line with OECD
recommendations to prevent profit shifting through
unfair transfer pricing practices. Country-by-country
reporting (CbCR): Indonesia has implemented CbCR
reporting requirements, a BEPS initiative, to monitor
the activities of multinational enterprises and prevent
tax evasion. Increased transparency:

16.  Automatic Exchange of Information (AEOI): Indonesia has
adopted AEOI for the automatic exchange of financial information
with partner countries in accordance with OECD standards.
 This aims to reduce opportunities for tax avoidance and evasion.
Common Reporting Standard (CRS): Indonesia has also
implemented the CRS to facilitate the automatic exchange of
financial information to help identify and address international tax
issues.
 Simplification and Efficiency Improvement Policy: Reduction of
the corporate income tax rate (PPh): To improve business
competitiveness, the Indonesian government reduced the
corporate income tax rate from 25% to 22% and provided
additional tax incentives for certain sectors.

17.  Tax Amnesty Programme: Indonesia launched a tax amnesty programme
to encourage repatriation of assets and address less transparent tax
avoidance practices.
 Tax incentives for investment: Tax holidays and tax allowances: To
encourage investment, Indonesia provides tax incentives such as tax
holidays and tax allowances for certain sectors and regions.
 Administrative Simplification Policy: Introduction of e-Faktura and e-Pajak:
Indonesia has introduced e-Faktur and e-Pajak initiatives to improve
administrative efficiency and reduce the potential for tax fraud.
These changes reflect the Indonesian government's efforts to follow
international standards recommended by the OECD, improve economic
competitiveness and maintain the neutrality of the tax system. However, it is
important to keep in mind that tax policy can evolve according to the
country's needs and economic challenges.

18. VI. Comparison and Findings
 Tax Rates
Indonesia in Law No. 7, 2021: Corporate income tax rate (PPh): The corporate income
tax rate in Indonesia is 22% (twenty-two percent), effective from fiscal year 2022,
providing stability for businesses. Value Added Tax (VAT) Rate: The general VAT rate in
Indonesia is 10% (ten percent). However, this rate may be changed to a minimum of 5%
(five percent) and a maximum of 15% (fifteen percent) based on government policy
regulated by government regulation after being submitted to the House of
Representatives of the Republic of Indonesia for discussion and approval in the
preparation of the State Budget. Adjustment of VAT rates in certain sectors to promote
industrial growth.
Turkey: Corporate tax rate: The corporate tax rate will increase from the current 20 per
cent to 25 per cent, while the corporate tax rate for banks and financial institutions will
increase from the current 25 per cent to 30 per cent. VAT: Adjustment of VAT rates in
response to changing economic dynamics, increasing flexibility. The general VAT rate of
18 percent will be raised to 20 percent from 10 July 2023, and the VAT rate on goods and
services, which was 8 percent, will be raised to 10 percent.

19.  Investment incentives
Indonesia: Tax Holiday Programme: This programme
provides tax incentives in the form of tax holidays for certain
sectors that invest a certain amount. Tax Allowance:
Provides incentives in the form of tax rebates for certain
industrial sectors that meet certain criteria.
Turkey: Research and Development Tax Facility (Ar-Ge):
Incentives to encourage investment in innovation and
research. Strategic Investment Incentive Schemes: An
incentive scheme that provides tax benefits for strategic
investments that support the growth of certain sectors.

20.  Competitiveness indicators
Indonesia: Position in the Global Competitiveness Report (GCR):
Assessment of a range of factors including infrastructure, macroeconomic
stability and innovation. Ease of Doing Business Ranking: An assessment of
the ease of doing business, including tax-related aspects.
Turkey: Global Competitiveness Index (GCI): Turkey's ranking in the GCI,
which assesses the overall competitiveness of the economy. Global Ease of
Doing Business Ranking: An assessment of the ease of doing business in
Turkey, including tax aspects.
From this analysis, it can be concluded that both countries have various
policies that support economic neutrality and competitiveness.

21. VII. Recommendations
 Several lessons can be drawn from the countries with the best
rankings in the International Tax Competitiveness Index (ITCI) for
improving tax policy (Miškufová et al., 2022):
 1. Efficient tax structure: The best-ranked countries, such as
Estonia, which has consistently ranked first over the period,
demonstrate the importance of an efficient tax structure that
supports economic growth and investment.
 2. Low corporate tax rates: The best-ranked countries often have
low corporate tax rates, such as Latvia and Lithuania, which
joined the OECD and immediately ranked high in the ITCI. This
shows that competitive corporate tax rates can improve a
country's competitiveness.

22.  3. Non-distortionary property taxes: The highest ranked countries
tend to have less distortionary property taxes, in contrast to lower
ranked countries that often have property taxes with a variety of
separate levies.
 4. Responsive tax policy: The best-ranked countries demonstrate
an ability to respond to economic conditions with appropriate tax
policies, such as Norway, which improved its ranking by adopting
loss carryback provisions during the coronavirus pandemic.
 5. Adoption of international tax rules: The best-ranked countries
also tend to adopt international tax rules in line with EU
directives, demonstrating the importance of complying with
international standards in improving tax competitiveness.

23. VIII. Conclusion
 Overall, the implementation of policies that promote
competitiveness and neutrality in the tax system can
have a positive impact on investment, economic
growth, and state revenue.
 Countries with neutral tax rules, efficient tax systems,
competitive tax rates, effective incentive programmes,
and transparent tax administration tend to rank higher
in terms of tax competitiveness and neutrality.
 Implementing these strategies can attract investment,
spur economic growth, and improve the overall
competitiveness of a country's tax system.

24. Reference
 Bénassy-Quéré, A., Fontagné, L., & Lahrèche-Révil, A. (2005). How does FDI react to corporate taxation?
International Tax and Public Finance, 12(5), 583–603. https://doi.org/10.1007/s10797-005-2652-4
 Bretschger, L., & Hettich, F. (2002). Globalisation, capital mobility and tax competition: Theory and evidence for
OECD countries. European Journal of Political Economy, 18(4), 695–716. https://doi.org/10.1016/S0176-
2680(02)00115-5
 Daglioglu, A. B. (2023). Turkiye Tax Regulation Guide. Crowe Troy CPA.
 Gunadi, G. (2022). A Little View of The Indonesian Tax System. Journal of Tax and Business, 3(1), 65–71.
https://doi.org/10.55336/jpb.v3i1.17
 Mengden, A. (2023a). International Tax Competitiveness Index. The SAGE Encyclopedia of Business Ethics
and Society, 75. https://doi.org/10.4135/9781483381503.n636
 Mengden, A. (2023b). International Tax Competitiveness Index 2023. The SAGE Encyclopedia of Business
Ethics and Society, Tenth Edit, 75. https://doi.org/10.4135/9781483381503.n636
 Miškufová, M., Košíková, M., Jenčová, S., & Vašaničová, P. (2022). the Tax Competition Among European
Countries. Journal of Management and Business: Research and Practice, 14(2), 1–13.
https://doi.org/10.54933/jmbrp-2022-14-2-2
 Puspita, D., & Hamidi, U. S. (2022). Dua Dekade Implementasi Desentraliasi Fiskal di Indonesia. Badan
Kebijakan Fiskal Kementerian Keuangan Republik Indonesia, 1–289.
 PWC Indonesia. (2022). Indonesian Pocket Tax Book. Indonesian Pocket Tax Book, 3.
https://www.pwc.com/id/en/pocket-tax-book/english/pocket-tax-book-2022.pdf
 Undang-Undang Nomor 7. (2021). Undang-Undang No. 7 Tahun 2021 tentang Harmonisasi Peraturan
Perpajakan (HPP). Republik Indonesia, 12(November), 1–68. https://peraturan.bpk.go.id/Details/234926/perpu-
no-2-tahun-2022%0Awww.djpk.depkeu.go.id

25. Thankyou