Indonesia's Government Mulls Offering Suzuki Tax Breaks

The government of Indonesia may provide tax incentives to Japanese automobile and motorcycle manufacturer Suzuki Motor to support the development of the company's US$800 million car factory in the country.

"We will consider Suzuki's request for tax breaks if it does invest here," Industry Minister M.S. Hidayat said on July 7, 2011.

The ministry's director general of high-tech priority industries, Budi Darmadi, said tax incentives may be extended to the company as the automotive industry was one of several business sectors that could benefit from tax reductions as stipulated in a 2008 government regulation.

"The incentives could also include import duty exemptions for production equipment," he said.

Budi added that Suzuki would also be eligible to receive the incentives as it planned to also produce engines and transmission units in Indonesia — one of the criteria the government prioritized for firms seeking the incentives — in additions to low-cost and "green" cars.

"We are currently discussing the technical requirements of low-cost and green cars, such as performance variables and components, with related stakeholders and expect to make a decision soon," he said.

Suzuki could reportedly spend up to US$800 million in 2012 to expand its business in Indonesia, earmarking the country to become its regional production base.

Suzuki CEO Osamu Suzuki said after meeting the industry minister at the ministry that his company planned to boost the production capacity of its Indonesian plant and increase the local content of its products.

Subronto Laras, the president commissioner of PT Indomobil Suzuki International, the authorized distributor and local producer of Suzuki in Indonesia, confirmed the allocation of the investment for the development of the new variants: low-cost and green cars. "Producing large volumes of 'eco cars' will be our challenge as global demand for such cars will increase and this is the very market we want to grab," he said, adding that Suzuki may produce up to 100,000 environmentally friendly and low-cost cars under the plan.

"We are waiting for the government to issue supporting regulations. If all runs well, including the provision of tax incentives, we'll implement the plan," Subronto said.

He said the planned investment would also be used to enhance Suzuki's production processes, such as forging, increasing the use of locally made components, including machines and transmission units, and upgrading the production capacity of its motorcycle and automobile plants in Tambun, Bekasi, West Java.

Currently, Subronto said, the company had an annual production capacity of 100,000 to 120,000 cars and 1.3 million motorcycles, 15 to 20 percent of which were exported.

"The production capacity will be increased to meet market demand," he said, but did not disclose figures.

Subronto added that he was optimistic on the outlook for the domestic automobile market as the country's per capita GDP broke $3,000 last year, a level that marks the transition of customers' preference from motorcycles to cars. He added that the ASEAN market held bright prospects due to the integration of the region's market in 2015.

Indonesia's potentially large car market has attracted major automobile makers to increase their investments in the country.

Recently, PT Toyota Motor Manufacturing Indonesia (TMMIN), plans to invest Rp 1.7 trillion ($198.9 million) next year to boost production capacity at one of three factories.

Carmaker PT Astra Daihatsu Motor (ADM) also began construction on a new factory at the Suryacipta industrial estate in East Karawang, West Java, with an anticipated investment of Rp 2.1 trillion.