Progressive vehicle tax 'won't affect investment'

Urip Hudiono, The Jakarta Post, Jakarta

The government's plan to impose a higher taxes on private vehicles as part of its energy saving campaign is unlikely to affect investments in the automotive sector, a government official says.

Head of the Investment Coordinating Board (BKPM) Muhammad Luthfi said tax rises might affect vehicle prices -- and possibly public demand -- but were unlikely to affect investment in the automotive industry as the domestic market kept growing.

"It all depends on the market, whether our automotive market will be able to absorb the price increase," he said. "And I think it will, if we consider its current condition."

Luthfi said automotive sector had grown significantly during this year's first quarter, with car sales increasing by 40 percent, while motorcycle sales grew by 35 percent.

"From an investment point of view, the industry still holds up good prospects for future investments," he said.

Luthfi said his office has yet to receive any reports on any cancellations of investment commitments because of the government's plan.

As part of its recent energy conservation campaign, the government is preparing several regulations for private vehicles to discourage the excessive use of fuel.

One regulation would require cars with engine capacities of over 2,500cc to use the unsubsidized Pertamax and Pertamax Plus fuels, while others will increase vehicle import tariffs and impose luxury taxes on car purchases.

The government is also considering imposing progressive taxes on private vehicle ownership, where people who already own one vehicle will be taxed more for any additional ones they buy.

The Association of Indonesian Automotive Manufacturers (Gaikindo) earlier said the progressive tax would unlikely affect domestic demand, as those owning more than one car only accounted of 1 percent of the country's 230 million population.

Head of the finance ministry's Economic, Financial and International Collaboration Studies Agency (Bappekki) Anggito Abimanyu said the government was also considering limiting the number of private vehicles on the streets through a vehicle lifespan scheme.

"We have yet to decide which production years will be affected by the policy," he said. "We hope to decide on the details of the policy soon and implement it by next month."

Environmentalists have called on the Jakarta administration to ban all vehicles produced before 1990 from the capital's streets to help reduce the capital's worsening air pollution.

Anggito said a planned rise in luxury taxes would also help boost national revenues.

Revenues from luxury taxes were Rp 2.2 trillion (US$224.49 million) in the first half of this year, more than half of the Rp 4 trillion earmarked for 2005, he said.

Finance ministry director general of tax Hadi Purnomo said progressive vehicle taxes and vehicle lifespan schemes were not matters for central government.

"Import tariffs and luxury taxes are determined by the finance ministry, but the other policies are under the jurisdictions of local administrations," he said.