Why Must Factory Scrap/Waste Destruction in SEZs Follow Official Customs Procedures?
The destruction of production offcuts (scrap), industrial waste, and defective goods (rejected goods) within a Special Economic Zone (SEZ/KEK) is an operational activity tightly bound by customs regulations. Because raw materials imported into an SEZ enjoy Import Duty exemptions and uncollected VAT facilities, every portion of those materials—including the resulting process waste—remains under the supervision of the Directorate General of Customs and Excise until its customs status is legally resolved.
Rules regarding the customs treatment of remaining raw materials and waste in SEZs are comprehensively governed under Ministry of Finance Regulation (PMK) No. 33/PMK.010/2021 on Tax, Customs, and Excise Treatments in Special Economic Zones. Unilaterally dumping, burning, or selling scrap without Customs approval is classified as a serious legal violation, as it carries the risk of leaking facility-benefited goods into the domestic market without settling state financial obligations.
For expatriate management, HSE (Health, Safety, and Environment) managers, and customs compliance teams, understanding the official destruction workflow is vital. Conducting destructions in compliance with official procedures not only cancels the Import Duty liability on remaining raw materials, but also keeps inventory account balances in the IT Inventory system accurate, safeguarding the company against administrative fines during customs audits.
What Are the Categories of SEZ Factory Scrap/Waste and Their Customs Settlement Options?
In SEZ manufacturing operations, production waste is categorized based on its physical characteristics, economic value, and potential environmental impact. Each category carries distinct legal customs handling options.
As outlined in the facility goods treatment and SEZ supervision guidelines on the Ortax Data Center, there are three main options for settling the customs status of production offcuts and waste:
- Official Destruction (Pemusnahan Resmi): Conducted for waste or damaged goods that no longer hold economic value or pose environmental hazards, proven via physical destruction witnessed under the supervision of Customs Officers.
- Release to the Local Market (TLDDP): If the scrap retains economic value (e.g., recyclable metal cutoffs, sheets, or plastics), it can be sold to the local market (Tempat Lain Dalam Daerah Pabean / TLDDP) after settling Import Duties and Import Taxes (PDRI) based on the scrap value/tariff rate.
- Hazardous Waste (B3) Processing / Donation: For hazardous waste (Bahan Berbahaya dan Beracun / B3), destruction or processing must be executed in collaboration with licensed third parties holding official permits from the Ministry of Environment and Forestry (KLHK).
5 Official Procedural Steps for Factory Scrap Destruction in SEZs
The procedure for destroying facility waste in an SEZ mandates complete transparency—from submitting a written application and field verification to making inventory balance adjustments in the IT Inventory system.
Referring to the supervision and services guidelines of the Directorate General of Customs and Excise, here are the 5 operational steps that SEZ Business Entities (Pelaku Usaha KEK) must execute:
- Compiling the Scrap List and Estimated Volume: Production and warehouse teams inventory the types, estimated weight/volume, Bill of Materials (BOM) conversion percentages, and origin customs document (PPKEK) details for the scrap to be destroyed.
- Submitting a Formal Destruction Request to the Supervising Customs Office (KPPBC): The company submits a written application to the Head of the local Customs Service Office, attaching detailed itemized lists, storage area photos, and the proposed destruction method.
- Physical Inspection and Site Verification by Customs: Customs Officers conduct an on-site inspection to match the physical scrap with the request list and evaluate the safety of the execution site.
- Executing Destruction & Issuing the Official Destruction Report (Berita Acara Pemusnahan / BAP): Destruction takes place at the approved site witnessed in person by Customs Officers. Upon completion, both parties sign the official Destruction Report (Berita Acara Pemusnahan / BAP) as legally binding proof.
- Recording the BAP in the IT Inventory System: The signed BAP document is uploaded to the company’s IT Inventory system as the legal basis to deduct the inventory balance.
Scrap Settlement Procedures: Official Destruction vs. Sales to Local Market (TLDDP)
| Evaluation Parameter | Official Destruction (Pemusnahan Resmi) | Scrap Sales to Local Market (TLDDP) |
| Economic Value of Goods | No economic value / fully damaged | Retains commercial / recycling value |
| Duty & Tax Obligations | Exempt from Import Duty and VAT (0 IDR) | Payable Import Duty & PDRI based on scrap tariff rates |
| Primary Customs Document | Official Customs Destruction Report (BAP) | PPKEK Outbound Declaration to TLDDP |
| Direct Supervision | Physical presence of Customs Officers required | Handled through standard customs document processing |
| IT Inventory Impact | Scrap/Waste balance deduction based on BAP | Balance deduction based on outbound PPKEK document |
Securing Scrap Recording Accuracy Using Host-to-Host IT Inventory Applications
The integration of a Category A Host-to-Host (H2H) IT Inventory system such as BZone plays a crucial role in ensuring that waste accumulation figures in the system operate in complete sync with real production formulas.
As detailed in the SEZ IT Inventory Prune technical implementation guide, discrepancies between the Bill of Materials (BOM) scrap ratio and actual accumulation are major triggers for audit findings. BZone automatically calculates scrap/waste percentages from every Production Order transaction pulled from the internal ERP, presenting the data in standard Customs Report formats in real-time.
With BZone, once the destruction process is completed and the BAP is issued, the compliance team enters the BAP reference number into the system to execute automated balance adjustments without the risk of negative stock, ensuring full compliance with PER-24/BC/2023 regulations.
FAQ: Factory Scrap/Waste Destruction in SEZs
Is factory waste destruction in an SEZ allowed to take place outside the SEZ area?
Yes, provided that specialized destruction equipment or facilities (such as B3 incinerators) are unavailable inside the SEZ area. However, transporting scrap outside the zone requires customs escort documentation and prior written approval from the Head of the local Customs Service Office (KPPBC).
How should the destruction process be handled if the waste is classified as Hazardous Material (B3)?
The company must partner with an official B3 waste processor/destroyer licensed by the Ministry of Environment and Forestry (KLHK). The destruction process must still be attended by Customs Officers to directly witness the physical destruction of the facility-benefited goods.
Can accumulated scrap stored in the warehouse be destroyed periodically once a year?
Yes. However, it is highly recommended to perform destructions periodically (e.g., quarterly or semi-annually) to prevent warehouse storage areas from exceeding capacity and to minimize stock discrepancy risks during stock opnames.
What are the sanctions if a company disposes of scrap without involving Customs Officers?
Such actions are classified as unauthorized releases of facility goods into the local market (TLDDP). The company will face retroactive assessments for outstanding Import Duties and PDRI, alongside administrative fine penalties according to applicable customs laws.