Govt to raise luxury tax on cars of 1,500-3,000cc

The Jakarta Post, Jakarta

The government has made a proposal to raise the luxury tax on cars with an engine displacement of between 1,500 cubic centimeters (cc) and 3,000 cc up to 10 percent. An automotive manufacturers association immediately responded by revising down its expected number of car sales this year.

"The tax increase will not be significant, but it will support the government's energy conservation program," head of the Ministry of Finance's Financial, Economic and International Collaboration Studies Agency (Bapekki), Anggito Abimanyu, said in a talk show held by Trijaya FM radio on Monday.

He added that it would not mean a significant impact on car sales in the country -- expected to reach 550,000 units this year.

"The (luxury tax) increase will reduce car sales by between 10,000 and 20,000 units, which is not overly significant when we're talking about 550,000 that has been predicted. It will encourage the people to have cars with smaller engines," he said.

Anggito argued however, that the luxury tax hike would not help the country save much energy, and therefore should be complemented with other measures such as imposing a progressive tax on car ownership and other power-saving measures.

Anticipating protests from industry players on the luxury tax increases, he said the government had discussed the issue to strike a balance between minimizing losses for the private sector and energy conservation measures that would reduce the cost of paying for the gasoline and diesel subsidies.

The Association of Indonesian Automotive Manufacturers (Gaikindo) secretary-general Freddy Sutrisno estimated that car sales, particularly sedans, would drop by between 15,000 and 20,000 units.

"Sedans above Rp 200 million (US$20,460) would see their sales drop, while cars assembled locally would not (be affected)," he predicted.

Separately, the Ministry of Industry's director general of transportation, telecommunications and information industries Budhi Dharmadi confirmed the plan although he said the increase range proposal was not the final formula.

"(The formula) is more or less like that (between 2.5 percent and 10 percent), but it is not yet final," he told The Jakarta Post, while calling on stakeholders to wait for an official announcement from Anggito.

He had said earlier, however, that the government considered increasing the luxury tax on vehicles with less than 2,000cc engines as they accounted for about 70 percent of the passenger cars in the country.

The government has considered some measures to slash fuel consumption, including progressive taxes on private vehicle ownership and the requirement that cars over 2,500cc use only non-subsidized Pertamax and Pertamax Plus gasoline.

The energy conservation measures are being considered in light of high global oil prices, rapidly rising domestic gasoline and diesel consumption and the 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.