The Impacts of Dividend Tax Exemption: Evidence from Indonesian Listed Companies

Recently, the Indonesian government introduced a new tax incentive known as the dividend tax exemption as part of its broader economic recovery and investment promotion strategy. Theoretically, lower tax rates are expected to encourage higher dividend payments and greater corporate investment, although there is conflicting empirical evidence on this relationship. Employing the difference-in-differences (DID) method, this study investigates the impacts of the dividend tax exemption policy in Indonesia using data on Indonesian publicly listed companies from 2018 to 2022. The results reveal that the incentives are insufficient to promote higher dividend payments or corporate investment. The results reveal that the incentives are insufficient to promote higher dividend payments or corporate investment. This finding indicates that dividend taxation plays a limited role in shaping firms’ investment behavior, as corporate investment decisions are primarily driven by internal financial capacity such as retained earnings and cash flow.