World Bank warns mis‑targeted tax incentives may cut jobs

The World Bank’s East Asia‑Pacific unit released the October 2025 Economic Report titled “Jobs”. The report warns that tax incentives that are not properly targeted and a VAT policy could reduce employment opportunities in the region.

Although the region’s Gross Domestic Product (GDP) growth remains above the global average, projections indicate a slowdown toward the end of 2025 and further deceleration in 2026. Several countries, including Indonesia, rely on short‑term fiscal measures that do not support sustainable growth, leading to declining production, consumption and job losses. Indonesia’s tax‑to‑GDP ratio fell to 9.1 % in 2021, the lowest in Asia.

The World Bank recommends reforms that remove entry barriers, boost competition, and align workers’ skills with technological change. A higher VAT rate could narrow the tax base and reduce compliance. These steps are relevant for policymakers, businesses and workers to preserve job creation.