Plan to cut domestic sedan sales tax

> Aims to up production, promote Indonesia as manufacturing hub

JAKARTA: Indonesia plans to lower taxes on domestic sedan sales in a bid to promote the country, the biggest car market in Southeast Asia, as a manufacturing hub for sedans, a finance ministry official told Reuters yesterday.

Sedans have so far been included in the luxury goods category and is subject to higher taxes of about 30-40%, versus multipurpose vehicles (MPVs) that carry a 10-20% tax, making them less attractive to car makers and buyers.

The plan to cut the sales tax for sedans has been included in a revision to the country’s Value Added Tax and Luxury-Goods Sales Tax Law, which the government will propose to parliament soon, said Goro Ekanto, who heads revenue policy study at the finance ministry’s fiscal policy office.

“How much the reduction is and its impact will be discussed further before a decision is made,” Ekanto said.

Industry minister Airlangga Hartanto said by cutting taxes, the government hopes to get carmakers to produce more sedans, not only for the domestic market but also for exports.

“We hope to enhance the potential to export sedans and one way to do it is to bring tax on sedans into alignment. In the global market, demand for sedans is much higher than for MPVs and SUVs (sport utility vehicles),” said Hartanto.

Indonesia charges a 30% luxury tax on sales of sedans with a cylinder capacity of up to 1,500cc, while sales of 1,500-3,000cc sedans are taxed at 40%.

In contrast, sales of smaller MPVs are currently taxed at 10%, while larger models are taxed at 20%.

A number of brands sell sedans in Indonesia, including Honda Motor and Toyota Motor that have the biggest share of total car sales in the country.

But manufacturers have said the difference in tariffs has discouraged them from producing sedans in Indonesia, which overtook Thailand as Southeast Asia’s largest car market in recent years and is growing as a regional production base.

The country’s Car Manufacturers Association (Gaikindo) has proposed the tariff on sales of smaller sedans be reduced to 10% to match that of MPVs.

A total of 533,903 vehicles, including sedans, were sold in the domestic market in the first half of 2017, up 0.3% from a year ago. In 2016, sedans accounted for about 2% of the 1.1 million cars sold.

Indonesia can produce more sedans if tax rates are cut, but the industry should focus on domestic market first, before exports, Gaikindo co-chairman Jongkie Sugiarto said. – Reuters