Income Tax Analysis on Foreign Investment in the Manufacturing Industry Sector

Abstract

This research explores the impact of income tax policies on foreign direct investment (FDI) in the manufacturing industry sector. As global competition for foreign investment intensifies, understanding the role of taxation in attracting and retaining foreign investors is crucial for economic development. The study aims to analyze how tax incentives, corporate tax rates, and international tax agreements influence FDI flows in the manufacturing sector across different countries. The research utilizes a qualitative approach, conducting a comparative analysis of tax policies and FDI data from several nations. Key findings reveal that tax incentives, such as reduced corporate income tax rates, tax holidays, and exemptions, are significant factors in attracting foreign investors. Additionally, the presence of double taxation agreements (DTAs) enhances the predictability of tax liabilities, making countries with such agreements more attractive. However, the study also highlights that tax policies alone are insufficient; political stability, regulatory transparency, and infrastructure quality are also critical in shaping investment decisions. The research concludes that while favorable tax policies are essential, they must be part of a broader strategy that includes strengthening legal frameworks, improving infrastructure, and ensuring a stable political environment. The study contributes to the literature on tax policy and FDI by providing insights into the complex relationship between taxation and foreign investment in the manufacturing sector, offering valuable implications for policymakers aiming to create an attractive investment climate.