Taxes to be cut for low cost, ‘green’ cars in June

JAKARTA. The government will issue a new fiscal incentive to encourage domestic manufacturers to make inexpensive and environmentally friendly cars, a minister says.

The incentive – a reduction in the luxury-goods sales tax (PPnBM) – has been agreed to by the Industry Ministry and the Finance Ministry, Industry Minister MS Hidayat said on Wednesday in Jakarta.

The government was previously considering replacing the luxury-goods tax with an excise duty, which was considered easier to implement.

The Industry Ministry’s director general for high-technology priority industries, Budi Darmadi, previously said that the size of the tax cut might be based on the amount of locally sourced materials used to make the vehicles, the environmentally friendly technology used in the manufacturing process and the vehicles’ fuel consumption.

Automobile manufacturers will be eligible for the lower tax rate for making cars with 1,000-cc engines that can travel farther than 22 kilometers on a liter of fuel or cars with 1,200-cc engines that could travel more than 20 kilometers per liter.

The tax break will also be given to manufacturers willing to transfer their technology within five years of starting local production.

Automobile manufacturers have long demanded that the government lower its current 10 percent luxury-goods sales tax on cars with engines under 1,500 cubic centimeters.

The luxury tax is one of several imposed by the government on automobiles. There is also a motor-vehicle tax (PKB) for cars, the cost of which varies in local administrations; a vehicle-ownership transfer tax (BBN), ranging from 20 to 25 percent of a car’s sales value; and a value-added tax, which can be as much as 40 percent of a car’s sales value.

The taxes have made it difficult for local businesses to offer a car below Rp 100 million (US$10,600), which is the maximum price for a low-cost car.

Several automobile manufacturers have already said that they were ready to start on low-cost green car projects as soon as the government passed the incentive.

Several new investment from international automobile manufacturers such as Daihatsu, Toyota and Honda in their local subsidiaries were reportedly on hold until the tax break is enacted.

Davy Tulian, sales director of PT Suzuki Indomobil Sales, recently told The Jakarta Post that the firm was eager to join the program, as producing low-cost compact cars was the core competency of Suzuki.

Several Suzuki models sold in Indonesia, such as the Suzuki Splash, already used alloy-based engines, which were inexpensive and could significantly reduce production costs, he added.

Johnny Darmawan, the president director of Toyota Astra Motor, said that his firm would soon kick off production once the regulation on the incentive was passed by the government.

“We will likely collaborate with Daihatsu for the time being, but may use different specifications,” he told the Post over the telephone.

Apart from promoting low-cost green car production, the government has been drafting several concepts for low-carbon-emission vehicles, including hybrid cars and electric cars, to support President Susilo Bambang Yudhoyono’s recently announced initiative to reduce fuel consumption nationwide. (Linda Yulisman/The Jakarta Post)