Govt mulls cutting luxury tax on cars

Adianto P. Simamora, The Jakarta Post, Jakarta

The government is considering lowering luxury sales tax on cars to boost domestic car demand in attempts to encourage foreign investors to manufacture cars in Indonesia, the Ministry of Trade and Industry says.

The director general of metal industry, machinery, electronic and miscellaneous industries, Achdiat Atmawinata, said the high luxury tax had made prices of many cars very expensive and had curbed sales.

"The current luxury tax is still very high. It could hamper the development of the domestic auto market and will in turn reduce the government's potential revenue from the sector in the future," Achdiat told The Jakarta Post.

He said if domestic car sales were strong, car producers could be enticed to set up their manufacturing plants here.

Today, the government imposes between 20 percent and 75 percent luxury tax on auto products based on type and specification.

Achdiat said the government had set up a task force, comprising officials from the ministry, the directorate of tax and excise, auto companies and other experts, to study the plan.

Aside from the luxury tax, the task force is also investigating reforming other aspects of the industry, including the car specification system, dealerships and import tariffs.

"Our main goal is to create automotive policy that can encourage foreign investors to manufacture cars in Indonesia rather than to import," Achdiat said.

One of the main factors dampening the interest of many car makers to set up manufacturing plants in Indonesia was the absence of a strong supporting industry, including component makers. But, Achdiat believed the supporting industry would automatically grow, once domestic car sales increased.

Competition among ASEAN countries to lure foreign investments in the automotive sector was now very tough, Achdiat said.

"If we want to attract them (investors), we must offer added value, otherwise they will go elsewhere, like Thailand, the Philippines or even China, making a huge investment in manufacturing there and exporting their cars to Indonesia," he said.

He said Thailand, which was now dubbed the Detroit of Asia given its strong automotive industry, began to progressively deregulate its automotive industry in the early 1990s, while Indonesia only started to do the same four years after.

Today, there are about 20 car assemblers in Indonesia, producing about 22 brands with a total capacity of 700,000 units per year.

The country's car sales reached 383,605 units in 1997, when the economic crisis started, but fell sharply to only 59,634 units when the crisis peaked in 1998.

The Association of Indonesian Automotive Industries (Gaikindo) predicted car sales would reach 320,000 units this year, up from 300,000 last year.

Jonfis Fandy, senior marketing and sales manager of Honda Prospect Motors, praised the plan, saying a decrease in car prices as the result of the cut to luxury tax would boost car sales.

This would attract car makers to set up manufacturing plants in the country, he said.

He noted however that tax was not the only reason many investors were reluctant to manufacture cars here as they were also concerned about the government's inconsistent policy on the automotive sector.

"A stable automotive policy is necessary for investors to make good investment planning," he said.