Textile producers demand govt suspend taxes

The Jakarta Post ,  Jakarta   |  Fri, 05/30/2008 4:28 PM  |  Business

Textile producers have demanded the government suspend taxes while they come to terms with an average 25 percent increase in production costs following recent fuel price hikes.

Ernovian Ghazali Ismi, executive secretary of the Indonesian Textile Association, said the government could either suspend value-added taxes (VAT) or import taxes to curb the "fuel pressure".

"For some companies, the impact of the fuel prices increase will only be felt during the post-production stage, which is around one to two months from now, but others are already feeling the effects," Ernovian told The Jakarta Post Thursday.

The government raised fuel prices by an average of 28.7 percent Saturday, bringing the price of gasoline to Rp 6,000 from Rp 4,500 and diesel fuel to Rp 5,500 from Rp 4,300.

"These policies (tax suspensions) have been applied in textile industries in China, Thailand, the Philippines, the United States and Singapore. Why can't we do the same?" he said.

The government imposes 10 percent VAT on textile products while import taxes vary for raw materials and textile machineries.

Ernovian said such a suspension could help manufacturers purchase raw materials or replace aging machines.

In response, the ministry of industry's director general for metal, machinery, textile and multivarious industries, Ansari Bukhori, said tax suspensions would not significantly benefit the industry.

"Increases to industrial fuel prices have always followed market prices. The main problem here is the increase in transportation prices. We may be able to suspend those taxes but I don't see any significant impact from such a policy," Ansari said.

"As for import taxes, the government has already set zero import taxes on cotton, which is the main raw material for the textile industry," he said.

The ministry has put forth other measures to support the textile industry, mainly centering on upgrading machineries.

The ministry has stated that more than 75 percent of textile machineries in the industry are 15 years past their point of optimal usage.

In March, the government granted textile companies Rp 255 billion (US$28.4 million) in subsidies for machinery restructuring and Rp 45 billion in interest rate subsidies under its textile revitalization program, the first phase of which absorbed Rp 153.31 billion.

Ansari said the first phase had stimulated foreign and domestic investment worth Rp 1.55 trillion within the industry.

Industrial Minister Fahmi Idris originally set the 2009 target for textile exports at $11.8 billion, however, the association projects a growth rate of between 7 and 8 percent below the ministry's figure, or between $10.8 billion and $10.9 billion.

Last year, textile exports reached $10.3 billion, a slight increase from $9.4 billion in 2006. (anw)

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