Auto makers warn government that tax increase will backfire

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)