Textile Association Concerns Over Planned 12% VAT To Result In More Job Losses

Textile Association Concerns Over Planned 12% VAT To Result In More Job Losses

Thursday, 28 Nov 2024

The Indonesian Textile Association (API) has stated that the policy to increase the value-added tax (VAT) to 12% will compel the industry to reduce labor and energy costs for operations.

David Leonardi, the Vice Chairman of API, noted that the VAT increase will have a significant impact on the tax burden of products sold, particularly in a context where consumer purchasing power remains weak and illegal imports are prevalent.

"Efficiency measures are a temporary solution to cope with the VAT hike. These measures include workforce reductions and energy savings," David explained. However, he emphasized that efficiency is not an ideal approach. Nonetheless, it is being implemented solely to ensure the sustainability of the textile and textile products (TPT) industry to prevent closures.

He elaborated that the 12% VAT will affect the taxes on services and goods related to the production processes in the TPT industry, which will also see increases alongside the VAT rise. "Given the current situation of weak consumer purchasing power, this scenario could lead to domestic TPT products being less competitive," he added.

As a result, David predicts that production activities may decline due to a decrease in orders. Currently, the industry's utility levels are at their lowest, making the workforce in this sector particularly vulnerable to adverse effects, such as layoffs or termination of employment.

Meanwhile, business operators will implement energy efficiency measures by reducing the number of machines in operation. However, these efficiency steps have adverse effects on the overall health of the textile and garment industry.

In response, the Indonesian Textile Association (API) has engaged in discussions with the government to seek solutions. One of the primary proposals is to postpone the increase in Value Added Tax (VAT) for at least one year. "This postponement is expected to provide the textile and garment industry with time to adapt," they added.

Furthermore, the association believes that a policy package is necessary to maintain the competitiveness and resilience of the domestic textile and garment industry. Consequently, even with the VAT increase to 12%, the industry should still be able to endure. API has reported that at least 38 textile factories have ceased operations in the past two years. From the beginning of the year until September, approximately 46,000 workers in the textile and garment industry have faced layoffs, with projections indicating an additional 30,000 workers may be affected by the end of the year. (deriz@insightinnews.com)

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