These incentives are expected to drive foreign direct investment (FDI), which in turn will boost the economy by creating jobs, transferring technology, increasing exports and spurring local business activities.

Billions of rupiah have been sacrificed in the name of this goal through tax holidays, tax allowances and tax base and taxable base reductions. According to the 2023 Tax Expenditure Report from the Fiscal Policy Agency (2024), Indonesia gave up Rp 362.5 trillion (US$21.9 billion) in revenue, equivalent to 1.73 percent of gross domestic product (GDP), to stimulate economic activity.

But the fundamental question remains: How effective are these fiscal incentives, really? Behind the impressive numbers lies a grimmer reality.

A recent investigation by the Kompas daily revealed an embarrassing truth: More than half of the investment barriers in industrial zones do not stem from bureaucratic red tape, but from local NGOs and mass organizations that act like mafia-style groups. They control waste projects, demand a cut of employment quotas and threaten factories with protests if their demands aren’t met.

In 2023 alone, one industrial area in West Java received 130 proposals from such groups, most concerning waste management. The pattern continued into the following year: of 122 proposals, only one addressed labor issues while the rest targeted waste, now seen as a gold mine by thuggish groups cloaked as social organizations.

This troubling pattern coincides with a broader decline in investor confidence, as reflected in weakening FDI performance over the years. According to data from the International Monetary Fund, FDI net inflows as a percentage of Indonesia’s GDP have been on a downward trend, falling from 2.2 percent in 2019 to 1.8 percent in 2020 and 2021, and then rising slightly to 1.9 percent in 2022 before dropping to 1.6 percent in 2023.