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Indonesia’s textile sector wants VAT scrapped

Indonesia’s upstream textile industry wants raw materials supplied by local manufacturers to be exempt from VAT. Currently, tax exemption for imported raw materials is provided only to those companies that use these relatively cheap imported raw materials for output that is shipped abroad. However, domestic textile manufacturers supplying raw materials to domestic facility owners are subject to a 10 per cent value added tax.

For facility owners, this situation makes it attractive to opt for imported raw materials instead of buying from local suppliers. Scrapping the 10 per cent VAT is expected to boost demand for local raw materials. Indonesia’s textile and garment exports increased 0.62 per cent in the first half of 2017.

Boost in exports is also said to be a result of the introduction of automated processes in textile and garment manufacturing. Automation has made the exporters even more competitive in terms of pricing and delivery, thereby boosting the country’s exports.

The country is looking to attract foreign importers with improved economic and political stability. This could, in turn, be a deciding factor in reinforcing Indonesia’s position in global textile and garment industry. The country’s clothing and textiles go mainly to the United States, Japan, Turkey, China, and Germany.