Harnessing Tax Policy to Accelerate Islamic Economy as a Growth Engine in Developing Countries

Abstract

Introduction: Islamic economy holds significant potential to support economic growth in developing countries. However, limited fiscal incentives and unintegrated tax policies hinder its optimal contribution to national development.

Methods: This study employs descriptive analysis using secondary data from the Financial Services Authority (OJK), global Islamic economy reports, and taxation policies in Indonesia and other developing nations. The objective is to assess the alignment between tax strategies and Islamic economic development.

Results: Indonesia’s Islamic banking market share remains at 7.3%, with financing concentrated in trade and consumption. The VAT increase to 12% and the adoption of a digital tax administration system aim to boost revenue. However, insufficient tax incentives for halal SMEs and exporters constrain the sector’s global competitiveness.

Discussion: Integrating Islamic finance with inclusive tax reform—such as tax exemptions for exporting halal SMEs, the development of Islamic green sukuk, and the digitalization of zakat and waqf—could strengthen economic resilience and sectoral productivity.

Conclusion: Adaptive and transparent tax policy aligned with Islamic economic growth strategies is vital for achieving sustainable economic progress in developing nations.

Novelty: This research highlights the strategic integration of taxation and Islamic economic development as a key driver of inclusive growth in the digital era.