JAKARTA: The Investment Coordinating Board (BKPM) has proposed income tax cuts to support the labor-intensive footwear and textile industry.
The BKPM’s deputy director for investment monitoring and implementation, Azhar Lubis, said the board had talked to the Office of the Coordinating Economic Minister and the Finance Ministry to suggest a reduction in employees’ income tax (PPh21) by as much as 50 percent.
“It’s still a suggestion, but we hope they will grant it soon,” Azhar said on Thursday, adding that the incentive was suggested to last for five years and would come with terms and conditions.
The mulled tax cut would only be applicable for companies that export 50 percent 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 labor-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 prompted manufacturers of shoes and textile goods to lay off workers. At least 40,000 workers at footwear factories and another 39,000 textile workers were dismissed in the first half of this year.
To avoid more layoffs and revive the industries, the BKPM on Oct. 9 launched a special help desk for the two industries called “DKI-TS”. To date, the desk has assisted 33 companies that are under pressure to terminate 24,509 workers, of which three cases had been solved, saving 1,458 jobs.
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 (Aprisindo) 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 labor-intensive industry,” he commented.
In the past two years, textile and shoes businesses have seen decreased demand from within and outside the country against the backdrop of global economic uncertainty. Besides facing decreased orders, the industry faced the added challenge of rising electricity prices.
State-owned electricity firm PLN last month lowered the industry electricity tariff from about Rp 1,200 per kwH to about Rp 1,100 this month. However, both Ade and Eddy said the price was still too high.
The government’s third economic stimulus package released on Oct. 7, promises a 30 percent discount on power used between 11 p.m. and 8 a.m. Only later did PLN explainthat that incentive only applied if the usage exceeded normal volumes.
