Government may lift import duty, VAT on automotive spare parts

JAKARTA (JP): The government may lift both the import duty and value-added tax (VAT) on automotive parts in a bid to salvage the crippled automotive industry and the transportation sector, Minister of Industry and Trade Rahardi Ramelan said on Tuesday.

Rahardi said the government was currently studying the possibility of slashing the 25 percent import duty and 10 percent VAT on car spare parts to lower their skyrocketing domestic prices.

"Officials of our ministry and the finance ministry are currently in discussions to finalize the removal of the two taxes soon," he told reporters.

The rupiah's 75 percent drop against the U.S. dollar since August last year has pushed up prices of spare parts drastically, debilitating all 300,000 public transportation companies across the country.

In the North Sumatra capital of Medan a massive strike by public transportation drivers last week led to a vandalism and looting spree.

Rahardi said only 331,000 of the country's 2.4 million public transportation vehicles were still roadworthy.

These were predominantly those that were less than six years old and with fewer than 375,000 kilometers on the clock, he added.

The spare parts which are in particular high demand include tires, batteries, oil filters, air filters, fuel filters, fuses, brake pads, clutches, clutch covers, timing belts, fan belts, distributor contacts, tire bearing, and light bulbs.

The Land Public Transports Organization said spare parts contributed 44.74 percent of its members' operation costs if the rupiah was 10,000 to the U.S. dollar.

The rupiah has gradually strengthened to about 11,000 to the dollar after it bottomed out at about 17,000 earlier this year.

Major commodities

Rahardi also announced on Tuesday that the government had lifted export bans on all major commodities, except rice.

The commodities include fish meal, wheat, wheat flour, soybeans, sugar and kerosene.

The ban was lifted because those commodities were no longer subsidized, Rahardi said.

"For the time being, the export ban on rice is still in place because it is still subsidized," he said.

The minister also said that the government was currently preparing a scheme to boost exports by delaying payment of import taxes and value-added taxes on shoes, automotive products, electronic products, and textiles and textile products.

Taxes on such products would only be imposed at the end of the production streams, and only products sold in the domestic markets would be liable to the taxes, he said.

Products destined for export markets would be exempted of the taxes, he said.

He said the finance ministry had also agreed to lift both import and value-added taxes on food products.

Rahardi admitted that exports of manufacturing goods remained slow currently because of its high dependency on imported raw materials.

Export-oriented companies with a high dependence on imported components had to deal with not only the rupiah's weakening value but also layers of trade financing problems.

"I admit that we have not been able to handle the problems of both the trade and the industry," he said, adding that banking problems and the exchange rate fluctuations continued to hinder the sector's recovery.

Waning confidence in the country has caused many foreign banks to be reluctant to accept letters of credit issued by local banks, despite government guarantees. This has forced many companies to conduct business in cash. (das)