Temporary tax relaxation right ingredient to revive vehicle sales in Indonesia

Following the news that the Coordinating Ministry for Economic Affairs approved the Ministry of Industry's proposal to relax the Sales Tax on Luxury Goods (PPnBM) of motor vehicles in stages during 2021;

Bakar Sadik Agwan, Senior Automotive Consulting Analyst at GlobalData, a leading research and consulting company, offers his view:

“The move will give a positive boost to the Indonesian automotive industry, which has been under depression due to the COVID-19 pandemic. Car retail sales in full year 2020 steeply declined by 44.7%, according to industry body GAIKINDO.

“The government’s earlier stimulus package and measures such as subsidising car loans to boost vehicle demand largely proved to be inadequate and stakeholders including OEMs, component manufacturers and Ministry of Industry has been, for long, demanding a temporary tax waiver. The temporary exemption or reduction will make the cars more affordable and encourage customers to purchase vehicles. However, on the flipside, the government will have to bear revenue losses.

“The tax exemption, for a period of nine months starting in March 2021, will be implemented in three phases. March-May 2021 being the first phase with 100% tax exemption, i.e., 0% PPnBM on all motor vehicles. Second phase between June-August with PPnBM with 50% exemption and third between September-November with 25% tax exemption. For electric vehicles, tax will be completely waived off for battery electric (BEVs) and levied 5% on hybrid vehicles (HEVs).

“Sales tax on vehicles in Indonesia varies between 10% to 125% of the vehicle price, depending upon the type of the vehicle. The tax exemption is expected to act as a major catalyst for domestic sales, production and associated stakeholders in the value chain. The revival of vehicle sales and production will not only revive the auto sector but also the subdued economic scenario in the country. While the move will offer big stimulus to demand, it is also important that the industry stakeholders continue to lure potential buyers through new vehicle launches, aggressive promotions, which include vehicle trade-in offers, cash discounts, low/zero interest rates, low monthly instalments, extended service and free accessories.”