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Tax cuts mooted for Indonesian textile, footwear companies
08
Dec '15
As Indonesia battles a stubborn economic slowdown, the country's Investment Coordinating Board (BKPM) has proposed income tax cuts to support the labour-intensive textile and footwear industry, according to a newspaper report.

The BKPM's Deputy Director for Investment Monitoring and Implementation, Azhar Lubis, said the board had suggested to the Office of the Coordinating Economic Minister and the Finance Ministry to suggest a reduction in employees' income tax by as much as 50 per cent for five years.

The suggested tax cut would only be applicable for companies that export 50 per cent of their production, employ at least 5,000 workers and provide details on the employees' Social Security Management Agency (BPJS) policies and salary slips.

Azhar explained that the incentive was expected to benefit the industry's cash flow. “Some companies file their workers' taxes directly to the tax office, so if the rate is cut, it will, of course, increase their cash flow,” he said.

The government is pushing efforts to revive growth in the labour-intensive industry after the country's economy weakened to the lowest level since 2009 in the past three quarters.

Falling demand combined with soaring material prices, rising electricity tariffs and illegal imports have forced manufacturers of shoes and textile goods to lay off workers. At least 40,000 workers at footwear factories and another 39,000 textile workers have lost their jobs in the first half of this year.

To avoid more layoffs and revive the industries, the BKPM launched a special help desk for the two industries in October. Called “DKI-TS”, the desk has so far assisted 33 companies that are under pressure to terminate 24,509 workers, of which three cases had been solved, saving 1,458 jobs, the newspaper reported.

Indonesian Textile Association (API) chairman Ade Sudrajat welcomed the tax incentive, but was of the opinion that it would only benefit the employees, not the businesspeople. “It will be useful to increase our employees' purchasing power,” he said.

He also added that the terms and conditions were too strict. “There are only few factories with more than 5,000 workers. It'd be better if it was at least 2,000 workers,” he said, adding that fewer than half of the shoe companies employed upward of 5,000 workers.

Indonesian Footwear Association head Eddy Widjanarko shared the same view with Ade. “The benefit for us [the businesspeople] is only a little, but we appreciate the stated effort and intention to support the labour-intensive industry,” he commented. (SH)

Fibre2Fashion News Desk – India

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