Progressive car taxation system to be revoked

JAKARTA (JP): City residents and companies who own more than one vehicle will soon no longer have to pay tax on them at rates of between 20 percent and 100 percent higher than the standard vehicle tax rates.

The three-year-old progressive vehicle taxation system is to be revoked from Apr. 1 as the administration has found it an ineffective way to increase local tax revenue, city councilor Amarullah Asbah said yesterday.

The proposed regulation to revoke the system, still being revised jointly by the City Council and the administration, is expected to be ready by March.

"With the completion of the new regulation, we will revoke the system beginning April 1 this year," he said.

Amarullah, who is head of Commission C for finance affairs, said the progressive car taxation system had many loopholes that had been manipulated by those who owned more than one car.

"Since the implementation of the rules three years ago, many parties who owned more than one car manipulated the rules by using, for example, the names of their relatives for their additional vehicles so they could avoid paying the tax.

We, therefore, considered that the progressive system has not worked as well as expected," he said.

Under City Bylaw No.4/1994, which was approved by the City Council in July 1994 and became effective on April 1, 1995, vehicle owners are required to pay 120 percent of the tax rate for a second vehicle, 140 percent for the third, 160 percent for the fourth, 180 percent for the fifth and 200 percent for the sixth and subsequent vehicles.

The progressive car taxation system was originally designed to increase the city's revenue and to slow the growth in the number of private cars as a way to solve the capital's burgeoning traffic problems.

However, after three years of implementation, there has been no significant change in the capital's traffic congestion.

The number of vehicles currently clogging the city is 2.79 million.

The progressive tax policy sparked controversy three years ago, as many people said that it would be meaningless because most rich people (who owned cars) would always find loopholes in the regulations and try to break the law.

The tax is also considered a burden on middle class people, as it affects them too.

Amarullah estimated the city's revenue from tax on motorized vehicles and the first transfer of vehicle ownership (BBN-KB) in the ongoing 1997/1998 fiscal year would amount to some Rp 197.4 billion (US$13.16 million), which is about 11.5 percent of Jakarta's total revenue.

He gave no figures for the previous fiscal year in which the city's total revenue was Rp 2.8 trillion.

Once the progressive vehicle taxation is eased, the tax will be lowered from 5 percent to 1.5 percent of the price of the car and the tax on vehicle ownership transfer (for the second owner) will be lowered from five percent to only 1 percent, he said.

"The progressive tax is only effective for new cars ... but actually the biggest section of the car market is for second-hand cars. So hopefully this new revision will encourage people to process the documents using their own names and, therefore, the city will receive more money," he said.

"Lets hope that the revision will do a lot of good for the residents and the municipality," he added. (edt)