COMPARATIVE LEGAL STUDY OF TAX HOLIDAY POLICY FOR PIONEER INDUSTRY IN ATTRACTING FOREIGN DIRECT INVESTMENT IN INDONESIA AND SINGAPORE

Foreign Direct Investment (FDI) plays a pivotal role in promoting economic growth, and many countries employ fiscal instruments such as tax holidays to attract investors. Both Indonesia and Singapore implement tax holiday policies targeting pioneer industries to stimulate FDI inflows. However, despite Indonesia’s regulatory efforts, Singapore consistently surpasses it in investment competitiveness and FDI performance.

This study aims to a comparative legal analysis of the legislative and institutional frameworks governing tax holiday policies in Indonesia and Singapore through the evaluative lens of the United Nations Conference on Trade and Development (UNCTAD) Investment Policy Framework for Sustainable Development (IPFSD) and the ASEAN Comprehensive Investment Agreement (ACIA). The research examines the legal and policy inconsistency between Indonesia’s rule-based tax holiday regime and Singapore’s discretion-based model, and the application of the principle of non-discrimination, encompassing the standards of National Treatment (NT) and Most-Favoured-Nation (MFN), within both countries’ tax incentive frameworks.

This research used the normative juridical method combined with an economic perspective and micro-comparative legal analysis. This study draws on primary legal materials, academic writings, and international investment law instruments. Through doctrinal interpretation and comparative evaluation, it assesses how each country’s framework aligns with international legal standards such as the UNCTAD Investment Policy Framework for Sustainable Development (IPFSD), and the ASEAN Comprehensive Investment Agreement (ACIA).

This study concluded that Singapore adopts more flexible, merit-based, and sector-neutral approach that allows adaptive ministerial discretion and recognizes foreign financing schemes, creating a conducive investment environment. Indonesia, by contrast, maintains a rigid, rule-based framework that restricts eligibility to newly established firms and imposes high capital thresholds, potentially resulting in indirect discrimination and reduced investor inclusivity.

The study suggests that Indonesia should enhance the flexibility, transparency, and inclusiveness of its tax holiday regime by adopting performance-based eligibility criteria, permitting incentives for reinvestment by existing enterprises, and explicitly codifying NT and MFN principles in domestic law to enhance competitiveness and legal certainty for sustainable FDI inflows.