New policy allows small car prices to drop
JAKARTA (JP): Buyers of sedans and commercial cars with small engine capacity will benefit from the government's planned new automotive policy, to be announced later this month.
Director General of Metal, Machinery, Electronics and Various Industries Agus Tjahajana said on Friday the prices of such cars could be lowered by 20 percent.
But prices of cars with larger engine capacities could increase by about 4 percent, due to the higher sales tax rate on luxury goods (PPn.BM), he said.
Agus said that the change in the price structure was possible due to the adjustment of their import tariffs and the rates of the PPn.BM tax imposed.
Under the new policy, import tariffs will no longer be determined by the percentage of the local components in the vehicles. Instead, it will depend on whether vehicles are brought into the country as component parts and assembled here (completely-knocked-down), or imported ready to drive (completely-built-up).
Agus said import duties for all types of imported built-up sedans would be cut to 60 percent, from 175 percent, while those for completely-built-up cars (CBU) used for commercial purposes such as family vans would be cut to 40 percent, from the current 200 percent.
Sedans and commercial cars with higher engine capacity are subject to higher PPn.BM tax rates.
Agus said the PPn.BM tax on cars with engines below 1500cc would be cut to 10 percent, from the current 35 percent.
The PPn.BM tax on vehicles with engines between 1500cc and 3000cc, however, will remain at 35 percent. The PPn.BM tax on cars with engine capacity above 3000cc will be increased to 50 percent, from 35 percent.
Imported cars for private use are subject to two different taxes in Indonesia: the PPn.BM tax and an import duty, which make imported cars much more expensive than their locally made counterparts.
Agus said the figures might still be changed and were awaiting approval from President B.J. Habibie.
He said the government would also abolish the local content requirement, which exempts domestic car manufacturers from import duties on imported spare parts for a car which has a local content of more than 40 percent.
"They will have to pay the same charges as, on a whole, imported cars."
Under an agreement struck with the International Monetary Fund, the government is required to abolish all barriers in the car manufacturing industry, including local content regulations, by the year 2000.
However, car analyst Suhari Sargo told The Jakarta Post he was uncertain whether the new policy would lower prices of small sedans, because domestic prices of cars were currently "abnormal".
"Car prices on the local market are currently often below their production costs. Producers have to lower prices of their cars to cope with the sales slump" he said.
Suhari said many car manufacturers priced their cars below their production costs, just to maintain a cash flow.
Technical director of car producer PT Toyota Astra Motor Adirizal Nizar, said the removal of an exemption on import duties for local content requirement would trigger an increase in the price of vehicles with high local content.
He said the price of Astra's most popular brand, Kijang, which has 49 percent local content, would increase by Rp 4.5 million (US$550) per unit if incentives were lifted.
On Friday, Minister of Industry and Trade Rahardi Ramelan said he was confident the import duty reduction on CBU cars would not harm domestic car makers.
"I am convinced this policy will encourage the domestic automotive industry. The new policy will also push up domestic car sales. Consumers with a tight budget can still buy cars. For them, we are developing small cars at low prices," he said.
Domestic car sales plunged 85 percent to 58,000 units in 1998, from 386,709 units in 1997. Sales are expected to fall even lower this year, to only 40,000 vehicles.
However, Suhari warned that the new policy would not immediately stimulate domestic sales.
"It is merely a long-term medicine pill which cannot help a patient in the throes of death," he said. (gis)