The Indonesian government is preparing a number of policies to encourage the recovery of the textile and apparel industry, which has faced pressures on production, investment, and market competition in recent years.
However, industry players and economists believe that improving the business climate and ensuring fair competition need to be a primary focus, in addition to providing fiscal incentives.
The policy package currently being prepared by the government includes the opportunity to provide tax holidays, Value Added Tax (VAT) facilities for outsourcing activities, accelerated tax restitution, financing support, and strengthening the supply of raw materials.
Coordinating Minister for Economic Affairs Airlangga Hartarto previously stated that the government is preparing at least five directions to strengthen the textile and textile industry, including restructuring support, incentives, and financing.
These policies take into account the significant contribution of the textile and garment industries to the national economy.
The government is preparing a value-added tax (VAT) facility for the textile industry that uses outsourced labour.
This policy is being discussed as part of the government’s efforts to provide preferential treatment to the textile sector, which faces seasonal production and demand patterns.
Coordinating Minister for Economic Affairs Airlangga Hartarto said the discussion on the VAT facility was held after President Prabowo Subianto requested a special policy regarding the use of outsourcing services in the textile industry.
Airlangga explained that the characteristics of the textile industry, particularly for export-oriented companies, mean that labor requirements can fluctuate according to demand cycles in destination countries. Orders for winter, summer, and other seasonal products vary in volume, requiring companies to adjust their production capacity.
In times of increased demand, textile companies often require additional labor through outsourcing services. Therefore, the government is considering providing VAT benefits for the use of these services.
In addition to VAT facilities, the government also plans to expedite the tax restitution process for export-oriented textile companies.
This step is necessary because exporting companies commonly apply for tax restitution, so accelerating the restitution process is expected to help maintain company cash flow.
The government’s efforts to strengthen the textile industry also include improving the supply of raw materials, both domestically and internationally.
The government is also promoting tariff harmonization between the upstream and downstream sectors to create more balanced business conditions for industry players.
Meanwhile, the government will tighten oversight of the import of illegal textile products, which are considered disruptive to the domestic industry.
Airlangga stated that President Prabowo has instructed the Directorate General of Customs and Excise at the Ministry of Finance to regulate smuggled goods, including used clothing.
From a labour perspective, the government is also promoting flexibility through the regulation of Fixed-Term Employment Agreements (PKWT).
This policy is designed to allow companies to adjust their workforce to production needs, which fluctuate depending on the season and order volume.
The government is also considering a number of other forms of support for the textile industry, including tax holidays and increased access to financing through banks. This financial support covers reinvestment and working capital needs.
The textile and garment industry is recorded as contributing around 0.97% to gross domestic product (GDP), employing around 4 million workers, and generating export value of around US$12 billion.
Redma Gita Wirawasta, Chairperson of the Indonesian Fiber and Filament Yarn Producers Association (APSyFI), stated that market guarantees with healthy competition are a more pressing need for the textile industry than additional fiscal incentives.
According to Redma, providing incentives will not have a maximum impact if domestic textile products still have to compete with illegal imports and products that enter through dumping practices.
He believes the government needs to ensure that the domestic market operates fairly so that the various facilities provided to industry can truly encourage investment and increase the competitiveness of domestic products.
Redma also recalled that the government had previously offered several incentives to encourage improvements in the textile and textile industry. However, the sector’s condition was deemed stagnant and even trending downward.
According to Redma, the government also needs to remove various obstacles that have so far reduced investment interest in the textile and textile industry. One of these is the lack of integration between upstream and downstream industries.
He also highlighted the influx of illegal imports and dumped products, complicated licensing processes, and logistical inefficiencies. He also cited the suboptimal implementation of the green industry vision as an additional challenge for industry players.
Redma believes market certainty is a crucial consideration for companies when making new investments or increasing production capacity.
He believes that tax holidays and VAT exemptions for outsourcing won’t necessarily have a significant impact on investment if domestic products still face unfair competition.
Image courtesy: IndustriALL
