Textile industry representatives have welcomed an anticipated move by the Indonesian government to make new corporate income tax cuts, to boost investment and make the country’s manufacturing industry – notably textile and clothing manufacturers – more competitive both at home and overseas.
The government is concerned that existing tax allowances and tax holidays, offered to several labour-intensive industries, are not working.
Under the existing government regulation 9 of 2016, companies can have 5% of their corporate income tax reduced for up to six years, depending on the amount they have invested.
Businesses can also get their income tax obligations waived for five to 10 years if they invest in a pioneering sector such as IT.
But the government said there had been very few takers because the requirements were difficult to meet.
Industry minister Airlangga Hartarto told reporters at a briefing in January that a new tax benefit scheme, which could be released by 1 March, looks likely to take into account the number of workers that companies employ as a condition of qualifying for the tax break.
The industry minister said tax deductibles would also apply to companies that invest in vocational education matching industry requirements.
He explained that Indonesia had been struggling with a lack of skilled workers because of poor-quality vocational education. “If this can be improved, industries such as textiles will be more competitive globally,” he said.
Commenting, Redma Wirawasta, secretary general of the Indonesian Fiber and Filament Association (Asosiasi Produsen Synthetic Fiber Indonesia – APSyFI), said: “The upstream industry will benefit from tax reductions, if it’s true that the requirements for such cuts will be made simpler.”
He said other details of the incentive programme are still being hammered out between the finance ministry, the industry ministry and the Investment Coordinating Board (Badan Koordinasi Penanaman Modal).
Sofjan Wanandi, an economic advisor to Indonesian Vice President Jusuf Kalla, said the proposal was still on track for being announced by 28 February.
Wanandi told WTiN that the difficulty of obtaining tax holidays thus far had prompted investors to divert their investment to other Asian countries such as the Philippines, Vietnam and Thailand, where tax incentives are also offered.
“The conditions for tax incentives are complicated. We will make it easier,” he said, without giving details.
“Hopefully the new incentives will spur more investment, especially in sectors that are export-oriented,” he added.
Wirawasta said that, in addition to the tax incentives, the government should also address the issue of high energy and logistics costs.
“The high cost of electricity and gas, as well access to ports, remains an impediment to more investment and expansion,” he said. “It’s also made it difficult for companies to export their products because they’re not competitive.”
Anne Patricia Sutanto, vice-president director of garment manufacturer Pan Brothers, also welcomes the plan.
“This is what we’ve been waiting for,” she says. “This will allow us to better manage and train our workforce, upgrade our equipment and improve research and development to increase productivity and efficiency.”
Pan Brothers, which makes clothing for brands such as Uniqlo, Adidas, The North Face, Lacoste and Calvin Klein, employs 28,000 people, mainly in Central Java province.
Sutanto, however, says the incentives should be supported by better infrastructure, as well as easier access to markets through free trade agreements.
Source: www.wtin.com