Indonesia’s textile and textile products (industri tekstil dan produk tekstil/TPT) sector faces compounding macroeconomic and operational headwinds in 2026. Data from Statistics Indonesia shows that TPT export values reached USD 4.85 billion in the first half of 2026. According to the Ministry of Industry, the sector employs over 3.8 million workers. However, the ministry’s Industrial Confidence Index (Indeks Kepercayaan Industri/IKI) released in April 2026 signaled contraction across the textile subsector.
The downturn has been driven by disruptions in the petrochemical raw material supply chain, triggered by rising geopolitical tensions in the Strait of Hormuz, higher energy costs, and escalating international logistics expenses. These pressures are affecting corporate margins and liquidity. Under these circumstances, tax refunds serve as one instrument to restore operational cash flow. However, the government has withheld several pending refund disbursements amid surging national tax refund claims.
Enforcement has intensified, with the Financial and Development Supervisory Agency (Badan Pengawasan Keuangan dan Pembangunan/BPKP) involvement, placing greater demands on the accuracy of commercial, customs, and tax data for textile enterprises. Consequently, corporate management must ensure absolute data consistency and regulatory compliance across all import, manufacturing, export, domestic sales, and tax transactions.
The TPT Industry Landscape
Performance across the TPT value chain reveals a clear divide between upstream segments (such as spinning and weaving) and downstream sectors (such as readymade garments). Aggregate data from the Ministry of Industry indicates that the TPT sector grew by 5.39% between 2024 and 2025, driven almost entirely by downstream sectors.
Upstream producers face intense pressure from dumped imports and illegal shipments of second-hand clothing. The Indonesian Fiber & Filament Yarn Producer Association reported that at least five large-scale upstream textile mills closed during 2025. The figure suggests an extension of a trend that saw approximately 60 operators shut down over the previous two years.
Conversely, domestic readymade garment manufacturers have expanded, leveraging duty-exempt imported raw materials within bonded zones. Updated import governance regulations have also shaped the growth. Regulatory changes, ranging from Minister of Trade Regulation Number 36 of 2023 and Minister of Trade Regulation Number 8 of 2024 to cluster-based import controls under Minister of Trade Regulation Number 16 of 2025 through Minister of Trade Regulation Number 24 of 2025, continue to face challenges in halting non-compliant imports.
Beyond cost and supply chain constraints, global sustainability benchmarks increasingly dictate the TPT sector’s competitive advantage. The Ministry of National Development Planning has designated textiles as a priority sector within the Circular Economy Roadmap 2025-2045. This initiative prepares domestic producers to meet European Union market requirements ahead of 2027 under the Indonesia-European Union Comprehensive Economic Partnership Agreement (IEU-CEPA), including strict eco-design criteria, circularity mandates, and carbon footprint disclosures.
The TPT’s investment and manufacturing growth are shifting toward labor-intensive downstream subsectors, with domestic demand continuing to support the industry. According to the Indonesian Textile Association, production capacity utilization spikes ahead of Eid al-Fitr due to seasonal demand for modest fashion, sarongs, and children’s apparel. To safeguard margins, manufacturers must maintain tight control over supply chain costs and tax liabilities.
Managing Domestic Sales Quotas in Bonded Zones
Managing bonded zone incentives remains a primary operational issue for textile enterprises. Governed by Minister of Finance Regulation Number 65/PMK.04/2021 concerning the Amendment to Minister of Finance Regulation Number 131/PMK.04/2018 concerning Bonded Zones, these incentives allow companies to store imported goods for processing, with the processed products intended for export.
The incentive grants customs duty suspension and value-added tax (VAT) exemption on qualifying imported raw materials. Processed goods, such as fabrics and readymade garments, may also be sold into the local customs territory (Daerah Pabean Indonesia Lainnya/DPIL), up to a cap of 50% of the realized export value.
The regulation triggers challenges for bonded zone companies. They must distinguish and track imported raw materials receiving incentives through the production process and determine whether the resulting products are ultimately exported or sold to DPIL.
For DPIL sales, companies must accurately calculate and remit applicable VAT and customs duties. Continuous accurate reconciliation of inventory, production, export, and domestic sales data is vital. Discrepancies increase exposure to tax audits, underpayment assessments, administrative penalties, and the potential revocation of bonded zone incentives.
Questions for Management
Will a company’s enterprise resource planning (ERP) platform be capable of reconciling customs inventory logs (IT Inventory) with the e-Invoice system in real time? The system must at least automatically distinguish imported raw materials receiving customs and tax incentives according to their ultimate use, whether incorporated into products for export or products sold to DPIL.
Companies must also address discrepancies between HS code descriptions on customs filings, such as import declaration forms (pemberitahuan impor barang/PIB) and export declaration forms (pemberitahuan ekspor barang/PEB) in the IT Inventory, and the item descriptions recorded on tax invoices. Inconsistent mapping can trigger a request for explanation of data and/or information (surat permintaan penjelasan atas data dan/atau keterangan/SP2DK) from tax authorities.
Data integration and reconciliation ensure accurate duty and VAT calculations, strengthen audit defense documentation, and eliminate data misalignments across operational, customs, and tax databases.
Core Tax Risks
Supply chain disruptions and increasingly stringent tax oversight have heightened tax risks for textile companies. Several areas warrant particular attention from management.
1. Increased Scrutiny on VAT Refunds
Export-oriented textile manufacturers tend to maintain an overpaid VAT position because domestic purchases incur input VAT while exports are 0%.
Ministry of Finance data shows national tax refund claims surged from IDR 232.2 trillion in 2023 to IDR 361 trillion in 2025. The surge prompted authorities to tighten refund verifications. BPKP’s active involvement in audit procedures requires taxpayers to provide proof of transactions, goods movement, and cash flows.
Incomplete records or data gaps can delay tax refund disbursements and disrupt corporate cash flow.
2. VAT Disputes in Bonded Zone Transactions
Transactions between non-bonded textile companies and textile companies in bonded zones often face disputes regarding the application of non-collected VAT incentives. In several tax court precedents, authorities adjusted the VAT tax base since the taxpayer failed to meet administrative prerequisites for taxable goods delivered into a bonded zone.
Conflicting interpretations of non-collected VAT incentives have led to disputes reaching the judicial review stage before the Supreme Court. Companies must therefore ensure documentation is complete and apply the appropriate tax treatment from the outset of each transaction.
3. Inventory Adjustments
Tax and customs authorities may cross-check audited financial statements against inventory movement reports submitted to the Directorate General of Customs and Excise. Spinning and garment manufacturing involve varying levels of scrap and waste depending on the production process. Companies must explain and support all inventory variances with appropriate documentation.
Furthermore, scrap or waste generated from imported raw materials sold locally to domestic third parties must be assessed for applicable customs duties and VAT. Unexplained inventory discrepancies may lead to tax and customs adjustments.
4. Demurrage and Transfer Pricing
Shipping disruptions have increased demurrage expenses resulting from vessel delays and cargo clearance backlogs. The tax treatment of these demurrage fees must be reviewed based on transactional substance, particularly regarding withholding taxes and VAT exposure.
Additionally, raw material price volatility has prompted multinational groups to adjust intercompany transfer pricing. Such adjustments risk tax audit corrections unless backed by sufficient transfer pricing documentation and comparable analyses that satisfy the arm’s length principle (ALP).
Governance and Organizational Readiness
As tax and customs systems integrate, textile companies must implement internal controls to ensure data integrity across operational units and systems. Companies must verify data alignment among PIB, PEB, customs inventory movements, general ledgers, and e-Invoice records.
Regular tax health checks are an effective diagnostic tool for identifying data discrepancies and compliance gaps before receiving an SP2DK or facing a tax audit.
Routine reviews enable management to identify potential adjustments, improve supporting documentation, and apply tax rules consistently across filings.
How Tax Consultants Can Support
Engaging tax consultants helps companies navigate compliance risks, tax refund applications, bonded zone operations, transfer pricing, and tax disputes. During the refund process, tax consultants review transaction documentation before submission, verify yield and inventory records, and provide representation throughout audit proceedings.
Tax consultants also deliver tax due diligence and tax reviews to mitigate compliance exposures and manage SP2DK inquiries. For companies involved in affiliated transactions, tax consultants help prepare transfer pricing documentation and analysis that substantiates pricing under the ALP.
Where a tax or customs dispute arises, tax consultants represent companies through formal objections, appeals before the Tax Court, and judicial reviews before the Supreme Court. Such an approach helps companies manage tax risks, enhance documentation quality, and protect cash flow.
If your textile company requires assistance with tax refunds, tax compliance, bonded zone arrangements, or transfer pricing risks, contact Ideatax for support tailored to your business needs.
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