Auto makers warn government that tax increase will backfire

JAKARTA (JP): A number of auto manufacturers warned the government on Wednesday that imposing higher luxury sales taxes would hurt automobile sales this year, which could in turn backfire on the plan to raise tax receipts.

They said the tighter tax policy would be counterproductive given this year's sluggish auto market.

"I believe the recipe being used is not going to produce the results that are expected," said president of PT General Motors Indonesia Luis F.F. Madaleno at a meeting between auto producers and Minister of Industry and Trade Luhut Binsar Pandjaitan.

The government has decided to hike luxury sales tax on automobiles in an attempt to cover the widening 2001 state budget deficit.

Although the new tax rates have not yet been determined, Minister Luhut said the government might aim for Rp 330 billion (about US$28.94 million) in additional tax revenues from the auto industry.

"This could be negative not only for the automobile industry but also for the objectives of the government," Madaleno warned.

Auto producers mainly blame political instability and a weaker rupiah, which pushes automobile prices up, for this year's grim market outlook.

Initially expecting auto sales this year to equal last year's 300,000 units, many have now lowered their predictions to between 240,000 and 280,000 units.

"There is a tremendous risk that this (higher taxes) will affect the numbers (of automobiles sold) and, at the end of the day, the revenue. Because the point is not the percentage, but rather the revenue coming to the government," Madaleno explained.

Madaleno called for more discussion on the tax policy so that the auto industry and the government could seek a win-win solution.

He suggested that the government allow the producers to present their own proposals for raising government revenues from the auto sector.

The president of PT Astra Daihatsu Motor, Tetsuya Honda, also warned that if the government raised tax rates by 15 percent, the automobile industry's sales volumes could decline by 26 percent.

"This (decline) will affect all types of automobiles," he added.

Meanwhile, the marketing director at PT Astra Toyota Motor, Alam Wijono, said that the company's announcement of higher automobile prices next month had already lowered demand significantly.

"If we adjust our dollar rates to 11,000, then we will have to raise our prices by between 10 percent and 15 percent," Alam explained.

He said that as companies adjusted their prices to take account of the higher dollar, the government was already guaranteed higher tax revenues in line with the increase in automobile prices.

According to Suseno, an executive of the Association of Indonesian Automotive Industries (Gaikindo), consumers pay too much in taxes when purchasing an automobile.

"For a passenger vehicle that costs Rp 100 million, the consumer pays Rp 60 million in taxes," he said.

He added that of the various government revenue-collecting mechanisms in the automotive industry, luxury sales tax was the most onerous as companies had to pay the tax up-front each year.

Gaikindo chairman Bambang Trisulo later told reporters that Gaikindo's appeal to have the tax hike postponed had been rejected.

Bambang said that Minister Luhut had expressed his understanding for the auto industry's woes, but had little choice other than to go ahead with the planned tax hike.

He added that the projected Rp 330 billion increase in tax revenue from the auto industry had yet to be approved by the Ministry of Finance.(bkm)