Luxury taxes on cars to go up despite opposition

The Jakarta Post, Jakarta

The government will soon raise the luxury tax on automobiles following the issuance of a presidential decree signed on Oct. 25 and released by the Ministry of Finance on Tuesday night.

"This will become effective soon," Anggito Abimanyu, the head of the finance ministry's Financial, Economic and International Collaboration Studies Agency, said as quoted by Bloomberg.

"The tariff team is now working on the details and the follow- up regulations for the presidential decree," he said. He did not specify how much the government hoped to raise from the higher auto taxes.

Buyers of sedans with an engine size of between 1.5 liters and 3.0 liters will have to pay a 50 percent tax rate on the benchmark price, from the previous 40 percent.

Those purchasing vans with an engine size of 1.5 liters to 2.5 liters will have to pay a 25 percent tax rate, from 20 percent, according to the presidential decree.

Apart from the luxury tax, auto taxes also include an import duty, value-added tax and a car registration fee -- which all together add about 40 percent to a vehicle's off-the-road price.

Industry players have slammed the decree, which they warn will deliver a devastating blow to already falling auto sales hit hard by high inflation and interest rates.

The vice chairman of the Association of Indonesian Automotive Manufacturers (Gaikindo), Jongkie D. Sugiarto, told The Jakarta Post the implementation of the policy would slash sales from an estimated 530,000 units this year, to about 450,000 units next year. Auto sales last year stood at 483,000.

"Without the decree, car sales are already slowing in the second half due to soaring inflation and higher interest rates," said Jongkie, who is also president director of PT Hyundai Indonesia Motor.

On-year inflation soared 17.89 percent in October from 9.06 percent on-year in September, after the government raised fuel prices on Oct. 1 by an average of 126.6 percent.

Gunadi Sindhuwinata, president director of PT Indomobil Sukses Internasional, the manufacturer and distributor of Suzuki, Nissan, Volvo and Audi vehicles, has a similar view.

"Gaikindo has asked the government to delay the implementation of the decree ...," he told the Post.

"With the slumping economy, increasing the luxury tax will have a greater impact on sales."

Gunadi said industry players should revise the retail prices of their vehicles, but did not go into detail.

"Hopefully, the economy will improve next year and sales will reach 520,000 units, similar to this year," he said.

PT DaimlerChrysler Indonesia, whose Mercedes-Benz leads the premium market segment, also voiced concern the decree would mean lower sales.

"Our customers have already been hit by higher interest rates because some receive financing from banks," said the company's deputy director for marketing, planning and communications, Yuniadi Hartono, adding that the popular Mercedes C class and E class would be affected the most by the decree.