ITB Researcher Advocates Tax Reduction on Cars, Believes It Can Boost Sales

Taxes in Indonesia’s automotive sector are currently considered high and not aligned with the gross domestic product (GDP) ratio. Jakarta (ANTARA) - Senior researcher at the Centre for Sustainable Transportation Systems at the Bandung Institute of Technology (ITB), Agus Purwadi, is encouraging the government to consider reducing taxes on passenger vehicles as a strategic step to boost sales and stimulate the national economy. Agus Purwadi, in Jakarta on Tuesday, assessed that taxes in Indonesia’s automotive sector are currently high and do not match the gross domestic product (GDP) ratio. He revealed that the tax component in vehicle prices currently reaches 40 per cent, derived from both central and regional taxes, which directly impacts vehicle selling prices in the market. Agus emphasised that tax policies should be derived from growing economic activities, rather than burdening developing sectors, especially those used as economic tools. Therefore, he suggested that the government conduct an evaluation based on comparisons (benchmarking) with other countries that have similar taxation to Indonesia. He also cited the example that fiscal stimuli provided by the government during the COVID-19 pandemic proved effective in stimulating the economy. In this context, according to him, tax reductions are seen as one form of stimulus that encourages increased vehicle sales. Furthermore, Agus warned that high taxes have the potential to create a high-cost economy, which ultimately suppresses people’s purchasing power and hinders industrial growth. “If we increase taxes, it tends to create a high-cost economy,” he said. Agus stressed that tax reductions are not merely about reducing state revenue, but a strategy to encourage broader economic growth. Previously, the Institute for Economic and Social Research at the Faculty of Economics and Business, University of Indonesia (LPEM FEB UI), stated that localisation-based component incentives for the automotive industry drive GDP growth and job creation. The localisation incentive scenario shows stronger results compared to the baseline scenario, which refers to Minister of Finance Regulation (PMK) Number 12 of 2025. In that simulation, national vehicle sales are projected to increase again after declining in 2025, with estimated total car sales reaching around 1.32 million units by 2030. Although internal combustion engine (ICE) vehicles still dominate, their market share is projected to drop significantly from 98 per cent in 2022 to around 75 per cent in 2030. Conversely, electrified vehicles (xEV) show rapid growth. In the baseline scenario, the combined contribution of HEV, PHEV, and BEV is estimated to reach 25 per cent of the total market by 2030. Meanwhile, in the localisation incentive scenario or based on Domestic Component Level (TKDN), the xEV market share increases higher to around 27.4 per cent, with HEV as the largest contributor. From those research findings, localisation-based incentives lower hybrid vehicle (HEV) prices by around 4–6 per cent, thus encouraging a shift in consumer preferences from ICEV to HEV. The price reduction for HEV due to incentives also triggers substitution from conventional vehicles, while accelerating electrification with relatively more efficient economic costs.