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

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.