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Indonesia offers tax break for labour-intensive sector to curb unemployment

[JAKARTA] Indonesia is offering another tax break for employers in labour-intensive sectors, aiming to rein in unemployment, in the latest of its series of stimulus measures, the chief economics minister said on Friday.

Economic growth this year is set to be Indonesia's slowest in six years, although third-quarter growth showed a slight rebound.

From September, President Joko Widodo's administration has rolled out measures to boost growth, from numerous tax breaks and lower energy prices to changes in rules on minimum wages and the removal of red tape.

Manufacturing activity contracted for the 14th consecutive month in November, according to a survey by Nikkei/Markit. A previous survey also showed factories shed jobs at the fastest pace in at least four years in September and July this year.

Friday's change on payroll tax will benefit both employees and employers, Coordinating Minister for Economics Darmin Nasution said.

A company with more than 5,000 employees that exports at least half its production can apply for the new tax facility, he said, adding that firms making textiles and shoes would benefit from the incentive.

Workers from such companies who receive a maximum annual salary of 50 million rupiah will get a tax break for two years, with effect from Jan 1 next year, Nasution said.

Manufacturers of textiles and shoes would also be eligible to apply for the so-called "tax allowance", which is a cut in corporate tax in the form of easier rules on amortization of assets, dividend tax and the treatment of losses. "So now these industries can get those tax facilities all over Indonesia," Nasution said.

Other tax breaks announced by the government this year include a 25-year-long tax holiday, lower rates for asset revaluation and the removal of double taxation on Real Estate Investment Trusts.

The government is expected to run a budget deficit of 2.7 per cent of gross domestic product this year, fuelled by a large shortfall in tax collection.

Suahasil Nazara, head of the finance ministry's fiscal policy office, said the incentives were intended to spur economic growth, and boost tax collection in the longer term.