Gaikindo says progressive tax may not hurt auto demand

Rendi A. Witular, The Jakarta Post, Jakarta

The government's plan to impose vehicle progressive tax is unlikely to affect domestic demand since the policy is aimed at discouraging people from having more than one car rather than being a fuel saving effort, an association says.

The Association of Indonesian Automotive Manufacturer (Gaikindo) chairman Bambang Trisulo said the plan would not affect the association's car sales target for this year.

"The planned regulation will only affect car owners with more than one car, and their number is less than 1 percent of the country's 220 million population. I don't think it will affect the industry much," he said after meeting Vice President Jusuf Kalla on Tuesday.

The progressive tax, expected to be imposed immediately, will force car owners to pay higher taxes of between 50 percent and 200 percent of from the normal rate for their second and subsequent cars.

"Vice President Kalla said the government was still studying the plan. Possibly, the scheme will be announced to the public next week," said Bambang.

The plan is being studied by the Ministry of Energy and Mineral Resources and the Ministry of Finance.

Gaikindo has projected that car sales will reach about 550,000 units this year, a revision of its original target of 520,000. The figure is much higher than last year's 483,000.

Bambang said the domestic car market remained promising because of the low penetration of cars into the market. The ratio of cars to people in Indonesia is 1:30, compared to the United States ratio of one car to 2.

He pointed to some items that could discourage demand, including the possibility of increasing car prices as a result of a steady weakening rupiah against the U.S. dollar and constant high global oil prices, which hit US$60 per barrel on Monday.

"Currency exchange rates and high oil prices are two key items that may raise car prices. But local automotive manufacturers will think twice before increasing prices due to tight competition."

Bambang said to avoid increasing prices, manufacturers would explore possibilities of reduce production volumes that might reduce the numbers of their workforce.

At present, there are 200,000 people working in the automotive manufacturing sector. This number excludes those in supporting industries.

During the meeting with Kalla, Gaikindo also discussed its preparation for the Gaikindo Auto Expo from July 8 to July 17 that would attract 150 participants including 25 manufacturers. Kalla is slated to officially open the expo.

Himself a businessman, Kalla's business group has controlled the sole distributorship for the Toyota Kijang vehicle for the eastern Indonesian market since the 1970s.

Bambang said the association expected total transactions during the expo to reach about Rp 1 trillion (US$104 million), up from Rp 600 billion in 2003.