Automotive Industry: Indonesia Plans to Cut Tax for Sedan Sales
For several years stakeholders in Indonesia's automotive industry urged the government to cut taxes on sedan sales. Finally, the government seems willing to alter its policies. The sedan is categorized as a luxury good, implying it is subject to an additional 30-40 percent luxury goods tax. This makes the sedan vehicle more expensive compared to other car types and therefore there exists less demand for the Indonesian-made sedan, both on the domestic market and international market.
Stakeholders argue that Indonesia has been missing out on opportunities because there exists great demand for sedan vehicles, especially abroad (it is estimated that about 80 percent of the world's drivers use a sedan vehicle). However, sedan manufacturing activities have been declining in Indonesia over the past couple of years due to slowing demand.
Meanwhile, the relatively high price for sedans in Indonesia undermines the attractiveness for car-makers to invest in sedan production facilities in Southeast Asia's largest economy. Considering Indonesia aims to become the region's biggest car manufacturing hub (implying it needs to overtake Thailand), a more conducive tax policy regarding sedan vehicles would be a step in the right direction. Currently, Indonesia mostly produces the multiple-purpose vehicle (MPV), for which there exists great demand in Indonesia. These MPV units carry a 10-20 percent tax tariff.
Goro Ekanto, Head of Revenue Policy Assessment at Indonesia's Finance Ministry's Fiscal Policy Office, said the government will soon send a revision of the Value Added Tax and Luxury-Goods Sales Tax Law to the House of Representatives (DPR) for approval. This proposal includes the plan to cut the sales tax for sedans. More details are not disclosed at this stage.
Currently, Indonesia charges a 30 percent luxury goods tax on sales of sedan vehicles that are equipped with a cylinder capacity of up to 1,500 cubic centimeter (cc), while sales of 1,500-3,000 cc sedan units are taxed at 40 percent. In contrast, sales of smaller MPVs are currently taxed at 10 percent, while larger MPV vehicles are taxed at 20 percent.
Read more: Overview of Indonesia's Automotive Industry & Market
Another incentive that is often proposed by stakeholders is to provide tax incentives for imports of basic materials that are used for the manufacturing of those sedan units that will be exported abroad.
In 2016, sedan vehicles only accounted for roughly 2 percent of the total of 1.1 million cars that were sold in Indonesia.