INDONESIAN UNDERGRADUATE ECONOMIC REVIEW

Volume 2 Issues 1 No.4 (4 pages)

Ijarah Muntahiya Bittamlik for Save Cost and Save Tax on Indonesias Embroidery Industry
Nurchaliza Lubis1, Indah Wulandari2 and Andre Basrija3
Universitas Padjadjaran -Bandung, West Java, Indonesia
1
nurchalizalubis@gmail.com, 2indah_baik12@yahoo.com, 3andrebasrija5@gmail.com
Accepted : October 28, 2016
Indonesian Undergraduate Economic Review 2016
ABSTRACT
Indonesias superior embroidery in its package of
typical kebaya, handmade bag, mukenah, and
many other type of products should make
Indonesia being a country that excels in
embroidery trade. In fact, domestic embroidery
markets still less compete especially with
embroidery import from China which has a much
cheaper price with mass production. In this paper,
solution for Indonesia embroidery industry will be
discussed in order to compete with the worlds
market and make clothing as a part of national
resilience. The method used is literature study. This
paper calculate how big the impacts of high cost
towards the competitiveness of Indonesias
embroidery price is. The data of how many

international embroidery products entering

Indonesia may also represent the position of
embroidery competitiveness in the domestic
market which is still losing. One of the factors is
the big amount of COGS that directly affecting the
price, which is one of the component is
maintenance expense. The solution offered is to
reduce COGS from the reduction of maintenance
expense, reflected by using an islamic banking
product called IMBT. So further, the maintenance
expense will be charged by the funder so COGS
will decrease, resulting in cheaper price and the
increase
of
Indonesias
embroidery
competitiveness.
Keywords: Embroidery, IMBT, Reducing Cost,
Compete, National Resilience

INTRODUCTION
Embroidery is one of creative industries in Indonesia
which constitutes a profitable sector and offers a great
opportunity to change the economy in Indonesia
through its capability to recruit employees. Seeing this
big opportunity, embroidery industrial sector may be
one of Indonesian sectors of national defense area in
the field of clothing. Embroidery is not only produced
in Indonesia, but also in many countries in the world.
At least, Trade Research and Development Agency
(TREDA) of the Ministry of Trade of the Republic of
Indonesia has noted that there are 19 countries
producing embroidery products. This means that
competition within embroidery industries is relatively
tight, proven by the TREDA research in 2008 that the
market share of Indonesian embroidery has just
reached which in this case Indonesia is in the 18th rank
out of 20 countries. It is still far compared to China in
the 1st rank with the market share of 49.0%.
Meanwhile,
amongst
ASEAN
countries,
Indonesia ranks the 2nd after Thailand. In terms of

Published online : November 14, 2016 (Vol.2 Issues1)

quality, Indonesia is fairly competitive with other

countries. How? With 17 central areas of embroidery
in Indonesia, and each area creates their own unique
and typical motive adjusting their own regions.
TREDA reveals why China dominates the market
share, that is because China produces products in a
large quantity and cheap production costs. Looking at
the above facts, it can be concluded that embroidery
belongs to the industry with tight competitiveness, thus
the price setting will very much influence the market
share of this industry.
LITERATURE REVIEW
1. Strategies
Michael Porter on his paper titled What is Strategy?
claims that companies are able to implement business
strategies using two ways, as the following :

INDONESIAN UNDERGRADUATE ECONOMIC REVIEW

Volume 2 Issues 1 No.4 (4 pages)

a. Cost leadership

Cost leadership is a form of business strategy

which suppresses costs so the selling price
becomes cheaper. This strategy is generally used
by companies with tight competitiveness in their
products.
b. Product Differentiation

Product differentiation is a form of business

strategy emphasizing on typical characteristics of
a product, in this case very rarely that this product
will meet another product with similar
characteristics and quality. Therefore, the
consumers do not have many choices to buy the
product. As a result, the company may determine
the price on its will. On average, companies
implementing this strategy are those producing
tertiary goods.
2. Ijarah Mutahiya Bittamlik
Ir. Adiwarman Karim in the book of Islamic Bank
states that up until now, the majority of Islamic
banking funding products are focused on Murabahah
products (Trading Principle). Both ijarah and
murabahah belong to the category of Natural Certainty
Contarct but the objects from both contracts differ one
another. The object from Murabahah contract is an
item, whereas the object of Ijarah is advantages or
benefits of goods or labors. Types of rentable
goods/services include the following:
1. Capital Goods (Fixed Assets such as buildings,
offices, stores, etc.)
2. Production goods: machines, heavy equipment
3. Vehicles/Transportation items
4. Services to pay for fees such as intuition fee, labors,
hotels, etc.
Different from Murabahah, Ijarah emphasizes on
the benefits of the goods/service as stated by Ir.
Adiwarman Karim in his book of Islamic Bank that in
principle, it is not allowed in the contract to state that
the renter is held responsible for the maintenance
because this means that the renter is responsible for
uncertain nominal (gharar). So it can be concluded
that in ijarah contract, costs adhering to the objects (for
example machine) such as maintenance expense,

Published online : November 14, 2016 (Vol.2 Issues1)

accumulated depreciation expense and insurance

become the responsibility of the renter, in this case is
the bank.
RESEARCH METHOD
Research method employed is literature study and
analysis using the concepts of decision making and
relevant information.
DISCUSSION
According to the research of Bank Indonesia, the
components of overhead cost in embroidery industry
are fixed labor expense, marketing expense, electricity,
transportation and administrative expense, as well as
machine maintenance expense, whereas the
manufacturing cost is production cost + overhead cost.
Machine maintenance expense is an expense incurring
as a result of switching over the production process
from manual to machinery. The sewing machine costs
about Rp100,000,000 - Rp200,000,000/machine. By
this expensive price, the artists certainly need a
medium of financial institution to be able to acquire the
machine without having to simultaneously spend that
much money, that is by means of a credit.
Credit mechanism usually used in conventional
banks is that the bank sells the machine with an
additional margin then the customer pays it via
installments. Thus, the acquisition falls to the customer
that the customer shall be in charge of any other costs
adhering to the machine. In Islamic contract, there is
what is called IMBT contract, which is a product where
the concept is similar to paying an item in installments
but there is a difference in the item acquisition. This
contract employs a rent principle where a company
may own the item by the end of the rental period.
Conceptually, this IMBT is similarly the same as
financial lease, but they are actually different in
principles. In financial lease, customers acquire the
item and in every payment, they will acknowledge it as
an account payable, but in IMBT, they are not allowed
to acknowledge it as an account payable because
truthfully the item has not been owned by them.
Therefore, they recognize it as a rent expense. In
Islamic principles, there may not be two contracts in
one transaction because it is an act of usury.
Consequently, the bank shall be responsible for any
costs adhering to the item, for example depreciation
expense and maintenance expense. The conclusion is,
with this contract, the overhead component can be

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Volume 2 Issues 1 No.4 (4 pages)

reduced, that is maintenance expense because it is

charged to the bank.

Table 1. Cost Manufacturing for Optimum Production (1100 products)

Descriptions

Total Expense per 2 months (In Rp)

Fixed Labor Expense

8,000,000

Marketing Expense

4,766,667

Electricity

3,000,000

Transportation and Administrative

1,200,000

Maintenance Expense

1,200,000

Total Overhead

18,166,667

Production Expense

68.560.000

Total Manufacturing Cost

86.726.667

Source : data processing in Bank Indonesia

Table 2. Comparison of Credit using Conventional System and IMBT System

(with Relevant Information Concept)
Common credit system in

IMBT system

Differential

conventional banks (Rp)

(Rp)

(Relevant information)

Fixed Labor Expense

8,000,000

8,000,000

Marketing Expense

4,766,667

4,766,667

Electricity

3,000,000

3,000,000

Transportation and

1,200,000

1,200,000

Maintenance Expense

1,200,000

(1,200,000)

Production Cost

68.560.000

68.560.000

Total Manufacturing

86.726.667

85.526.667

1100

1100

1100

78 .842,42

77.750,51

(1,090,90)

Descriptions

Administrative

Cost
Production Quantity
COGS/unit
Source : data processing by the writer

By using IMBT contract, the company may save the costs for 1.38% for every production of 1100 units of
embroidery or around Rp1,090.90 per unit of embroidery.

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Volume 2 Issues 1 No.4 (4 pages)

Table 3. Differences net income between conventional system and IMBT system
Conventional system

IMBT

Income***

771.000.000

771.000.000

COGS

520.360.000

513,160,000

Gross Profit

250,640,000

257,840,000

Depreciation

10,000,000*

(charged to the bank)

Rent Expense

(recognized as payable)

20,000,000**

240,640,000

237,840,000

Net Income/ Income Tax Payable

*Useful life of machine is assumed for 10 years

**Machine price is assumed for Rp100,000,000 in 5year period, so the annual installment paid is
Rp20,000,000
*** Income data are the figure obtained from the
research of Bank Indonesia in the two-year
period
Payable tax paid by the company (Income tax
payable)using IMBT system will relatively be smalled
compared to conventional credit system.
CONCLUSION
By using IMBT system in acquiring an embroidery
machine, there are some advantages, such as save tax
and save cost for businessmen, whereas for Islamic
bank, it will increase the market share so Indonesian
Islamic banks may also participate in global
competition. Its macro impact is that companies and
banks will collectively compete for economic defense
of Indonesia.

Charter, William K. 2005. Cost Accounting. Jakarta:

Salemba Empat
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core.ac.uk/download/pdf/11723343.pdf
Departemen Perdagangan Republik Indonesia. 2008.
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REFERENCES
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http://tasikmalayakota.go.id/statis-67-industri.html

Karim, Ir Adiwarman. 2011. Bank Islam Analisis

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Porter. 1996. What Is Strategy. Accessed from

http://search.proquest.com

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Volume 2 Issues 1 No.4 (4 pages)

Published online : November 14, 2016 (Vol.2 Issues1)