Evaluation Of The Effectiveness Of Tax Incentives And Sanctions In Improving Tax Compliance Of Corporates In 2025

Abstract

This study analyzes the impact of tax incentive and sanction policies on taxpayer compliance levels in Indonesia, as well as identifying their weaknesses and implementation gaps. The research employs a qualitative method using a literature review approach based on secondary data from academic journals and tax regulations. It examines the effectiveness of policy instruments such as tax holidays, tax allowances, and the exemption or reduction of final income tax for micro, small, and medium enterprises (MSMEs), as well as the implementation of administrative and criminal tax sanctions. The findings reveal that incentives can encourage voluntary compliance and expand the tax base if designed in a targeted manner; however, they are often hindered by moral hazard, weak monitoring, and misdirected targeting. Consistent and proportional sanctions can enhance both formal and material compliance, but their effectiveness decreases when law enforcement is uneven, public outreach is limited, or legal processes are overly lengthy. This study underscores the need for a combined policy approach integrating incentives and sanctions with tax education, administrative digitalization, governance transparency, and enhanced monitoring capacity to improve tax morale, narrow the compliance gap, and optimize sustainable state revenue.