Analysis of the Needs of Micro, Small, and Medium Enterprises in the Aru Islands for Tax Incentives that Support Green Economy Practices

Abstract

The transition to a green economy is a global and national imperative, with Micro, Small, and Medium Enterprises (MSMEs) playing a pivotal yet challenging role. In ecologically sensitive and remote regions like the Aru Islands, where MSMEs are the backbone of the local economy, supporting this transition is critical for both economic resilience and environmental preservation. This study aims to analyze the specific needs of MSMEs in the Aru Islands for tax incentives that can facilitate the adoption of green economy practices. Employing a qualitative, exploratory approach with a case study design, this research collected data through in-depth interviews and focus group discussions with MSME owners and key local government stakeholders. The analysis was framed using an integrated theoretical framework combining the Green Economy theory, the Theory of Market Failures, Stakeholder Theory, and the Theory of Planned Behavior. The findings reveal a significant "value-action gap" among MSMEs, characterized by a strong positive attitude towards environmental conservation but a severe limitation in their perceived behavioral control to adopt green practices. The primary barriers identified are profound financial constraints for upfront investments in green technology and a critical deficit in knowledge and administrative capacity regarding both green practices and tax procedures. Stakeholder perspectives further highlighted the need for improved inter-institutional coordination. The study concludes that the needs of Aru's MSMEs extend beyond mere financial subsidies. It underscores the necessity for a holistic, context-sensitive policy package featuring a tiered and simplified tax incentive model—such as accelerated depreciation or simple grants—that is directly coupled with a robust support ecosystem. This ecosystem must include localized awareness campaigns, technical assistance, and streamlined governance to effectively bridge the intention-behavior gap and empower MSMEs as agents of sustainable development in the Aru Islands.