Indonesian Govt Removes Import Duty for Automotive Industry

The import duty-free facility is one of the incentives prepared by the government to support the development of inexpensive and environmentally friendly cars. The other incentive will be, among others, a reduction of import duty for components used by other firms in automobile production activities other than assembling and a reduction in the luxury-goods sales tax (PpnBM), which is set to be issued later this year.

Under the prepared incentive of a sales tax cut, the amount of the tax cut would be based on the amount of locally sourced materials used to make low-cost and green vehicles, the degree of eco-friendly technology employed in the manufacturing process and the efficiency of fuel consumption.

Automobile makers will be able to obtain the lower tax rate when they make cars with 1,000 cubic centimeter (cc) engines that can travel farther than 22 kilometers on a liter of fuel or cars with 1,200-cc engines that could travel more than 20 kilometers per liter. The tax break will also be provided for manufacturers willing to transfer their technology within five years of starting local production.

Automobile manufacturers have long called for the government to lower its current 10 percent luxury goods sales tax on cars with engines under 1,500 cc.

At present, the government imposes various taxes for automobiles, including a motor vehicle tax (PKB) for cars, a vehicle ownership transfer tax (BBN) ranging from 20 to 25 percent of a car's sales value and a value-added tax, which can be as much as 40 percent of a car's sales value, which make it difficult to push down car prices to below Rp 100 million (US$10,600) — the benchmark for a car to be considered low cost.