Bisnis & Birokrasi, Jurnal Ilmu Administrasi dan Organisasi International Journal of Administrative Science & Organization, May 2011 Volume 18, Number 2 ISSN 0854 - 3844, Accredited by DIKTI Kemendiknas RI No : 64a/DIKTI/Kep/2010 INTRODUCTION Education is a vital aspect in a country’s development and determines whether the country will develop or remain backward. Higher commitment to education on the government’s part will lead to greater opportunity for the country to develop and advance. Many experts have stated that education has an important role in increasing public welfare, including in developing countries. Kremer (2005) states that the important policy questions stem from the potential role of education in improving the welfare of the five billion people living in developing countries. Many macroeconomists have emphasized the impact of education on economic growth. Next, Kremer describes the influence of education on economic growth. China, for instance, has successfully reduced proverty during the past twenty years, from 65% in 1981 to 17% in 2001. Well-managed education plays a critical role in improving a country’s human resources quality. Japan, Norway, and Finland, for instance, have well-managed human resources to develop their knowledge-based economy (KBE) or K-economy (Samhadi, 2006). Improvement in public welfare and the level of national education is part of Indonesia’s objectives as a nation and country, as stated by the founding fathers in the Preface to Constitution 1945 (UUD 1945). These objectives are specified in Article 31 of UUD 1945, stating that each citizen has the right to primary education, the financing for which is the government’s reponsibility. Law No. 20/2003 on the National Education System (henceforth referred to as “UU Sisdiknas”) states that all citizens have equal rights to quality education. Citizens with special physical, emotional, mental, intellectual, and/or social needs are entitled to special education. Citizens in remote, isolated, and backward areas, as well as folk communities in remote areas, are entitled to special education services. Nowadays education plays a greater role due to the shift in global economy from industrial economy to knowledge-based economy. In this modern age, international competitions constitute of competitions in science, knowledge, and intellect. Among the many factors that shape productivity, human resources have become the most influential and valuable, and determine a nation’s innovativeness. Yihui Xie in a research called “The Influence of Population Quality Competitiveness to Regional Innovation: the China Case” concludes that the level of education is vital in innovation (Xie, 2001). In reality, education in Indonesia is still far less advanced compared to many other countries. In 2010, Indonesia’s ranking in the Human Development Index dropped from 108 to 124 (Kompas, 8/11). According to the United Nations Development Program/UNDP report (Human Development Report/HDR) in 2011, “Sustainability and Equity: A Better Future for All”, the mean years of schooling for Indonesians are 8.5 years (see Table 1). This means that the highest level of education for the average Indonesian is secondary school (SMP). Therefore it is not surprising when Statistik Indonesia 2011, published by Statistics Indonesia (BPS), states that less than 7% of working Indonesians have diploma/ academy/university degrees (see Table 2); only about 4% Evaluating State Levies for Higher Education HAULA ROSDIANA Department of Administrative Sciences, Faculty of Social and Political Sciences, Universitas Indonesia, Indonesia h.rosdiana@ui.ac.id Abstract. In a number of developed countries, tax incentives for universities have improved the quantity and quality of graduates; in the long run, recapture tax potential losses have grown due to workforces with high levels of income. Therefore it is essential to review policies on state levies in Indonesia, since only 4% of the total national workforce have university-level education. The research maps and evaluates various forms of tax incentives for education under various tax regimes. Data is gathered through documentation study, extensive interviews, and focused group discussions. The policies are evaluated using the six policy criteria proposed by Dunn (2003). Research shows that there are many types of state levies for education, both in the form of taxes and non-tax state revenue (PNBP). In general, current policies for income tax (PPh) incentives are more progressive compared to those of previous tax regimes, although other tax incentive policies still face many limitations. Furthermore, tax incentives for higher education have not fully met the requirements for effectiveness, efficiency, adequacy, equity, responsiveness and appropriateness. It is our hope that findings from this research will serve as recommendations for policymakers in refining policies on tax incentives for higher education. Keywords: tax incentives, tax exemptions, tax deductions, VAT exemption, state levies, higher education.