Indonesia is contemplating income tax cuts to support the labor-intensive footwear and textile industry. The proposal is to reduce employees’ income tax by as much as 50 per cent. The incentive is expected to last for five years and would come with terms and conditions. The tax cut would only be applicable for companies that export 50 per cent of their production and employ at least 5,000 workers and is expected to benefit the industry’s cash flow.

Indonesia is pushing efforts to revive growth in the labor intensive industry after the country’s economy weakened to the lowest level since 2009 in the past three quarters. Falling demand combined with soaring raw material prices, rising electricity tariffs and illegal imports have prompted manufacturers of shoes and textile goods to lay off workers. At least 40,000 workers at footwear factories and another 39,000 textile workers were dismissed in the first half of this year.

Requirements currently imposed on manufacturers to procure raw materials and to access financing will be eased. Buffer stocks of cotton and leather will be established to ensure steady supplies of raw materials. In addition, trade promotion efforts in the domestic market will be ramped up. Free trade agreements with the prime export markets of Indonesia's footwear and garment industries will be sought. This will make prices of Indonesian products more competitive in Europe.