ASSESSING THE EFFICACY OF FISCAL POLICY IN SUPPORTING SUSTAINABLE ECONOMIC DEVELOPMENT: A CASE STUDY OF THE IMPACT OF KITE IKM FACILITATION ON EXPORT VALUE FOR SMEs IN INDONESIA

Abstract

Small and Medium Enterprises (SMEs) play a crucial role in Indonesia's national economy, contributing over 61% of the total GDP, with more than 64.2 million enterprises employing 97% of the national workforce. This significant contribution positions SMEs as vital players in achieving the Indonesia Emas 2045 vision, which aims to build sustainable economic development aligned with the Sustainable Development Goals (SDGs). To promote SMEs development, the government has implemented several fiscal policies, including KITE IKM (Kemudahan Impor Tujuan Ekspor Industri Kecil dan Menengah), an ease imports for export purposes exclusively for small and medium enterprises. The KITE IKM facility provides tax incentives comprised of an exemption of import duty tax, value-added tax, and sales tax on luxury goods for imported goods. This study evaluates the effectiveness of these fiscal policies, particularly focusing on the KITE IKM policy's impact on export performance. Utilizing a Vector Autoregression (VAR) model, the research assesses the causal relationships between the KITE IKM facility, exchange rates, and export values. The results reveal that the KITE IKM facility does not have a direct causal effect on export values, primarily due to the low utilization rate of the facility for importing materials used in export production. However, foreign exchange rates significantly affect both import and export values. Despite the tax incentives provided through import duty and tax exemptions, these measures have not succeeded in significantly boosting exports. Several challenges, such as limited awareness and understanding among operators, as well as complex regulatory frameworks, may hinder the full utilization of the KITE IKM facility. The study concludes that while the KITE IKM policy is a useful tool for supporting SME export activities, its impact remains minimal. To unlock the full potential of SMEs, the government must enhance policy implementation, improve outreach efforts, and ensure better stakeholder engagement in fiscal policy programs.