TKDN and Tax Incentives Paradox: From Barrier to Stimulus

Indonesia enforces a Domestic Content Requirement (TKDN) that mandates at least 40 % local components in imported products. In 2025, Apple was unable to sell the iPhone 16 in Indonesia because it did not meet the TKDN threshold, delaying sales. While intended to promote local goods, the rule can deter foreign investors.

To reach the 5.4 % economic growth target for 2026, investment equivalent to 32.4 % of GDP—about IDR 7,173 trillion—is needed. Yet domestic savings account for only 37 % of GDP, creating a 4.6 % saving‑investment gap. With an Incremental Capital Output Ratio (ICOR) of 6, each 1 % rise in growth requires 6 % of GDP in investment, intensifying fiscal pressure.

The government could convert TKDN into fiscal incentives, such as super tax deductions or tax allowances for firms that commit to local content. These incentives can lower ICOR and expand the tax base through the investment multiplier effect. This approach aims to meet the growth target without introducing new taxes.