Tax Incentive Policy and Recovery of SMEs in the post-COVID Period: The Moderating Role of Perceived Policy Effectiveness in Indonesia

Abstract

The efficacy of the lockdown measures implemented by the Indonesian government in mitigating the spread of COVID-19 has been proven, albeit at the cost of significant economic repercussions. The Indonesian government expeditiously enacted a comprehensive tax and fee reduction policy as a precautionary measure against adverse shocks. This study tries to prove (through the SME’s perspective) whether the tax incentives provided by the government have a positive impact on SMEs in maintaining their sustainable financial performance that leads to the survival-recovery of SMEs. This study also tries to observe the moderating effect of the perceived effectiveness of the implementation of tax assistance to increase the positive influence of the policy. Researchers collected data through a survey by distributing questionnaires to 1026 SMEs in Cianjur, Sukabumi, Bandung, and Bogor cities and Regencies. The data were then analyzed using the PLS-SEM method with the help of SMARTPLS version 3. The results showed that tax incentives from the government for SMEs have a significant positive effect on their sustainable financial performance and survival-recovery of SMEs. Indirectly, government tax incentives positively affect SMEs’ survival-recovery via the mediating role of sustainable financial performance. In addition, the perceived effectiveness of tax policy implementation positively moderates the effect of this relationship, thus increasing the impact of tax incentives on sustainable financial performance. In the end, sustainable financial performance has been proven to positively influence the survival and recovery of SMEs during a pandemic. This research closes with government policy recommendations for helping SMEs recover their performance in future crises.