Indonesia’s manufacturing sector remained a primary engine of economic growth through the first half of 2026. According to data from Statistics Indonesia, non-oil and gas manufacturing grew 5.14% in Q1 and 5.32% in Q2 year-on-year (YoY). While Q1 expansion trailed overall national economic growth of 5.61%, Q2 performance outpaced national economic growth of 5.29%.
Processing industries continue to contribute the most to Indonesia’s gross domestic product (GDP), accounting for 19.07% of GDP in 2025, up from 18.98% in 2024.
Amid this sustained expansion, manufacturing enterprises face an evolving tax administration and enforcement landscape. The Coretax rollout, transfer pricing scrutiny on affiliated transactions, and the need to align accounting with tax reporting are placing unprecedented demands on corporate data quality and internal governance.
Industrial Landscape in the First Half of 2026
Indonesia’s non-oil and gas manufacturing sector posted solid gains throughout the first half of 2026. Statistics Indonesia recorded YoY growth of 5.14% in Q1 and 5.32% in Q2. In Q2, non-oil and gas manufacturing growth exceeded the national economic growth rate of 5.29%.
Several subsectors contributed to this performance. In Q2, the food and beverage industry grew 6.51%. The basic metals, computers, electronics, optical products, and electrical equipment industry grew 8.04%, while the chemicals, pharmaceuticals, and traditional medicines industry grew 4.99%.
On the investment front, Ministry of Investment/Capital Investment Coordinating Board figures reveal that total national investment realization surpassed IDR 1,010 trillion in the first half of 2026, creating over 1.4 million jobs, with industrial manufacturing attracting a major share of capital inflows.
However, operational indicators presented a mixed picture. Industrial Confidence Index, published by the Ministry of Industry, remained firmly above 50 throughout the first half of 2026, recording 54.12 in January, 54.02 in February, 51.86 in March, 51.75 in April, 53.56 in May, and 52.90 in June. Although the June index remained in expansionary territory, it declined by 0.66 points from May. The Ministry of Industry reported that 22 of the 23 manufacturing subsectors were still in an expansionary phase in June.
Meanwhile, the S&P Global Indonesia Manufacturing Purchasing Managers’ Index (PMI) indicated pressure on manufacturing activity toward the end of the first half. The PMI stood at 49.1 in April, returned to 50.0 in May, and then fell to 46.9 in June. A reading below 50 indicates a contraction in manufacturing activity.
This divergence between the Industrial Confidence Index outlook and the PMI suggests that while business sentiment remains positive, operational realities are constrained by weakening market demand, rising input costs, and production output bottlenecks heading into the second half of 2026.
Sector-Specific Issues
As the manufacturing industry expands, businesses must navigate several tax and accounting challenges.
1. Coretax Rollout
Coretax rollout represents one of the most significant changes in tax administration. PER-11/PJ/2025 governs the reporting of income tax, value-added tax (VAT), luxury goods sales tax, and stamp duty as part of the core tax administration system.
For manufacturers processing large volumes of transactions, the new system places greater demands on data quality. Information from source documents, sales and purchase transactions, tax withholding and collection, and reconciliations with financial statements must be consistent.
Errors at the recording stage can affect subsequent tax filing and increase the risk of data discrepancies. Companies should therefore fortify their data controls and test system readiness before filing their tax returns.
2. Transfer Pricing Scrutiny
Manufacturing expansion and integrated global supply chains have increased transaction volumes with overseas related parties. These transactions may include purchases of raw materials, management services, licenses and royalties, technology transfers, financing, and other transactions.
Minister of Finance Regulation (Peraturan Menteri Keuangan/PMK) Number 172 of 2023 governs the application of the arm’s length principle to related-party transactions. The regulation also covers transfer pricing documentation, mutual agreement procedures, and advance pricing agreements.
Companies must ensure related-party transactions have economic substance, are supported by adequate documentation, and comply with the arm’s length principle. Transfer pricing documentation should go beyond formal compliance and accurately reflect the business circumstances and the functions each party performs.
3. Accounting and Tax Reconciliations
Discrepancies between accounting standards and tax law frequently create timing differences in revenue and expense recognition. For instance, PSAK 72 recognizes revenue based on performance obligations and the transfer of control.
For long-term manufacturing contracts or transactions subject to specific delivery terms, the timing of revenue recognition for accounting purposes may differ from the applicable tax treatment. Companies should reconcile regularly to identify these differences and properly document the basis for any fiscal adjustments.
4. Leveraging Tax Incentives
Tax incentives can reduce costs and support investment, but companies must meet both administrative and substantive requirements to benefit. One relief relevant to manufacturers is the additional deduction from gross income for apprenticeships, internships, and competency-based learning activities under PMK Number 128/PMK.010/2019.
Companies should ensure that eligible activities meet the applicable requirements, are supported by appropriate cooperation agreements, and are properly documented. Establishing controls from the outset is better than addressing deficiencies after an incentive has already been claimed.
Primary Tax Risks
Production growth and increasing volumes of related-party transactions also create additional tax risks for manufacturers. Three areas warrant particular attention are related-party transactions and cross-border service transactions, income tax and VAT reconciliation, and VAT refunds.
1. Related-Party Transactions and Cross-Border Services
Transactions with related parties represent a significant risk area, particularly payments for management services, royalties, licenses, financing, and other services provided by overseas entities.
PMK Number 172 of 2023 requires related-party transactions to comply with the arm’s length principle. The DGT may review the application of this principle and make adjustments where transaction values do not reflect arm’s length conditions. For specific transactions, including services and the use of or right to use intangible assets, the arm’s length principle must be considered from the outset.
The risk is not limited to transfer pricing adjustments. PMK Number 172 of 2023 also provides for secondary adjustments. Under certain circumstances, the difference between the value of a related-party transaction and its arm’s length value may be treated as a dividend, triggering tax consequences.
Companies should also be able to demonstrate that services purchased from overseas parties provide clear and provable economic benefits. Companies should prepare and retain contracts, cost calculation methodologies, evidence that the services were actually performed, and evidence of the benefits received consistently.
2. Income Tax and VAT Reconciliations
Differences between income tax and VAT reporting are another risk for manufacturers. High transaction volumes, sales returns, discounts, promotions, differences in revenue recognition timing, and the internal use of materials can create record differences.
Companies should ensure that revenue reported in their corporate income tax return reconciles with transactions reported in their monthly VAT returns. Unexplained differences may trigger requests for clarification or tax audits.
Reconciliations should also cover cost of goods sold, inventory, freight costs, discounts, returns, and foreign exchange differences. Any differences between bookkeeping and tax filings should have a clear, properly documented basis.
3. VAT Refunds
VAT refunds are particularly important for manufacturers engaged in exports or businesses that consistently incur more input VAT than output VAT. Delays in obtaining refunds can affect both cash flow and working capital requirements.
The Coretax rollout has changed the tax refund process. Effective May 1, 2026, PMK Number 28 of 2026 introduced a procedure for preliminary refunds of tax overpayments integrated with Coretax. The DGT has also stated that taxpayers with low-risk profiles and strong compliance records may have their claims processed automatically through the system.
These developments make data quality and pre-filing compliance increasingly essential. Tax invoice data, supplier identities, purchase transactions, payments, and accounting records should be consistent to prevent administrative issues.
Governance and Organizational Readiness
Tax management should be integrated into a company’s business processes rather than treated solely as a reporting function. Manufacturers must ensure transaction data, bookkeeping, and tax filing are connected and traceable.
The first step is improving financial data reconciliation. Identify and map all corporate bank accounts and payment channels. Clearly separate company accounts from shareholders’ or other parties’ personal accounts.
This separation helps ensure that all receipts and expenditures can be traced to legitimate business transactions. Banking data should also be reconcilable with the company’s bookkeeping and tax filings.
For related-party transactions, companies should shift their focus from simply satisfying transfer pricing documentation requirements to maintaining audit-ready records. PMK Number 172 of 2023 provides for transfer pricing documentation comprising the master file, local file, and country-by-country report, subject to the applicable criteria.
Ideally, prepare documentation as transactions occur. Each cross-border service transaction, for instance, should be supported by agreements, cost calculation methodologies, evidence of services performed, correspondence, and evidence demonstrating the benefit the company received.
Operations, finance, accounting, and tax departments should also work from consistent data and policies. Revenue recognition, asset depreciation, inventory, scrap, production costs, and related-party transactions should all be traceable from the accounting records through to the relevant tax filings.
This level of readiness is becoming increasingly important under Coretax, as tax administration relies more on integrated, reliable data.
How Tax Consultants Can Support
Engaging tax consultants helps manufacturers improve tax risk management, particularly in areas requiring niche analysis, such as transfer pricing, tax audits, tax refunds, and tax planning.
For transfer pricing, consultants can help develop transfer pricing policies, perform comparability analyses, prepare documentation, and review the structure of related-party transactions. They can also support companies throughout the Advance Pricing Agreement (APA) process to gain certainty about how transfer pricing rules apply. PMK Number 172 of 2023 provides the current framework for APAs under the transfer pricing regime.
For tax compliance and disputes, consultants can conduct tax reviews and tax due diligence, prepare responses to requests for explanation of data and/or information (surat permintaan penjelasan atas data dan/atau keterangan/SP2DK), and assist companies throughout audits, objections, appeals, and judicial reviews.
Consultants are especially valuable in areas that require specialized expertise or independent assessment. With a structured approach, manufacturers can identify tax risks earlier, enhance their documentation, and reduce potential adjustments during an audit.
If your manufacturing business is seeking tax support, contact Ideatax for solutions tailored to your company’s needs.
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