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Government vows support for labor-intensive industries
Jakarta Post - November 20, 2015
The government's seventh economic policy package, to be issued next month, would provide incentives for labor-intensive businesses and their employees, Sofjan Wanandi, chairman of the Vice President's advisory team, said on Thursday on the sidelines of the Asia-Pacific Economic Cooperation (APEC) summit in Manila.
Sofjan explained that the incentives could be in the form of tax facilities, such as a tax allowance or tax holiday, so that labor-intensive businesses would have additional funds to support their operations.
Meanwhile, the Finance Ministry's fiscal policy agency head Suahasil Nazara said the government was also assessing the possibility of revising Article 21 of the law on income tax as part of the new policy package, so that employees would pay lower taxes.
Suahasil said the revision would leave workers with higher take-home pay, which in turn would boost household spending. "We are thinking of revising it to boost domestic consumption, but past experience from 2008 shows that such a move wasn't really popular," he said on Thursday at the House of Representatives in Jakarta.
Back in 2008, the government introduced a temporary revision of Article 21 under Law No. 36/2008 on Income Tax, which reduced income tax payments for workers in certain business sectors. "If we eventually revise current regulations, it will only be temporary, just like the previous policy," Suahasil added.
The country's labor-intensive industries, such as the garment and textile industry, have been hit hard by the current economic downturn, resulting in massive layoffs. Growth in the segment continued to slow in the third quarter of this year.
Some 46,000 workers in garment and footwear businesses were laid-off during the first nine months of this year, according to data from the Manpower Ministry.
Bank Danamon economist Dian Ayu Yustina said the planned tax incentives should be able to help labor-intensive industries expand operations and hopefully, as a multiplier effect, allow the companies to absorb more workers.
"We need a breakthrough policy to boost workforce absorption," she said over the phone on Thursday. "However," she said, "what we also want is stimulus for the consumption side." She added that the government needed to boost consumption, as that remained the main driver of the country's economy.
Separately, Lana Soelistianingsih, an economist with Samuel Sekuritas, said the tax facilities would not be effective in helping the country reduce the unemployment rate and propel economic growth, as the underlying problem in the labor-intensive industries was labor productivity that could not compete with that of neighboring countries.
"The tax facility will not solve the productivity problem. What is more important is to provide proper training for the workers," she said.
According to Lana, most companies would just use the money saved on taxes to buy manufacturing machines to support medium-term production, replacing human labor. "I think it's better if the government sets aside part of its tax revenue to upgrade our workforce's skills to eventually raise their productivity," she said.
The government has introduced six economic policy packages since early September this year to provide fiscal incentives and streamline licensing procedures in a wide range of industries. The government promised to provide additional fiscal incentives for special economic zones to spur economic activity in selected provinces as part of the sixth economic policy package announced earlier this month.
The fiscal incentives will be given to eight special economic zones, namely Tanjung Lesung in Banten, Sei Mangkei in North Sumatra, Palu in Central Sulawesi, Bitung in North Sulawesi, Mandalika in West Nusa Tenggara, Morotai in North Maluku, Tanjung Api-Api in South Sumatra and Maloy Batuta Trans Kalimantan in East Kalimantan.
[Prima Wirayani contributed to this article.]
Source: http://www.thejakartapost.com/news/2015/11/20/govt-vows-support-labor-intensive-industries.html.
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