Govt considers luxury tax hike for cars below 2,000 cc

Govt considers luxury tax hike for cars below 2,000 cc

Zakki P. Hakim, The Jakarta Post, Jakarta

As part of the new energy conservation measures, the government
is considering an increase in the luxury tax for cars with an
engine displacement of below 2,000 cc (cubic centimeters), a
senior official at the Ministry of Industry has said.

The Ministry's director general of transportation and
telematics industries Budhi Dharmadi said the plan was under
consideration because cars with less than 2,000 cc account for
about 70 percent of the total number of the country's passenger
cars.

"We are still doing some research to be able to come up with
the best possible solution," Budhi told The Jakarta Post over the
weekend.

The research, Budhi went on, was expected to produce a policy
that could strike a balance between fuel-conservation measures
and tax income on one hand, and the impact on the automotive
industry and on future investments on the other hand.

Budhi was part of an inter-ministerial meeting on Friday
evening, which was led by the finance ministry's Financial,
Economic and International Collaboration Studies Agency (Bapekki)
Anggito Abimanyu.

Anggito could not be reached for comment and did not reply to
messages left by the Post on Saturday.

Earlier reports said that the government was working on a
formula of higher luxury taxes only for private vehicles with an
engine displacement of above 2,000 cc -- which roughly accounts
for 30 percent of the country's private passenger vehicles.

Nevertheless, the government, Budhi said, still was seeking
ways to remain consistent with its plan to exempt the proposed
tax for small sedans and public transportation vehicles, as a way
to keep the sector attractive for investors.

"But, we already realize that there might be some tough
choices to make," he said.

It would certainly be a tough decision, especially in light of
the fact that the sector is currently enjoying a healthy growth
spurt in recent years. Last year, car sales reached record highs
of over 483,000, with the industry association predicting this
year's sales would hit 500,000.

"We wanted to come up with a wise solution, one that will have
a minimal impact on the local industry and not discourage
investment," he said.

The government has been considering several measures to cut
down on greater-than-expected fuel consumption, including
progressive taxes on private vehicle ownership, where people who
already own one vehicle will be taxed more for any additional
ones they buy.

There is also a regulation that would require cars with an
engine displacement of over 2,500 cc to use only the unsubsidized
Pertamax and Pertamax Plus gasoline.

Some local administrations, including Jakarta, are also
considering a limit on the number of private vehicles on the
streets via a "vehicle lifespan" scheme.

The energy conservation measures are being considered in light
of the high global oil prices, rapidly rising domestic fuel
consumption and weakening rupiah against the U.S. dollar, which
could all force the government to spend more than Rp 135 trillion
(US$13.79 billion) this year just to reimburse state oil company
Pertamina for the fuel subsidy, about half of which benefits the
transportation sector.