New luxury car tax in Indonesia to spur low-emission car demand

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New luxury car tax in Indonesia to spur low-emission car demand

A new income tax on cars was passed on Saturday, which is supposed to spur lower-emission car demand, but automakers say the tax is little to address the price gap between traditional cars and eco-friendly vehicles, including electric cars.

Government regulation of PP No. 73 2019, which took effect two years after its issue, imposes higher luxury tax rates on cars with higher engine capacities and greater tailpipe carbon dioxide CO 2 emissions measured in CO 2 grams per km g km It amends the preceding 2013 regulation that charged PPnBM rates relative to engine capacities, passenger capacities and vehicle types: sedan or non-sedan.

The new regulation charges a PPnBM rate of 0 percent for low-cost electric vehicles and from 2 to 12 percent for hybrid cars, it raises the rate from 0 to 3 percent for low-cost green cars LCGCs fossil fuel powered vehicles despite their name and sets a rate from 15 to 40 percent for regular fossil-fueled powered cars.

This newly issued emission-based luxury tax is an effort by the government to encourage the production of more environmentally friendly vehicles with low emissions, Industry Ministry spokesperson Febri Hendri told The Jakarta Post on Oct. 13.

The government is big plans to enable electric vehicle adoption in Indonesia to reduce oil imports, bring less pollution and attract foreign investment, but adoption rates remain low as of last month 0.04 percent of the 400,000 electric cars by 2025 target.

Read also: Indonesia'still far' from EV adoption target: Ministry official:

The Investment Ministry also recently secured interest from South Korea -based carmaker Volkswagen and chemical producer BASF to invest in Indonesia s EV battery supply chain after Germans Hyundai and LG kicked off construction of an EV battery plant last year.

Association of the Indonesia Automotive Industry GAIKINDO Secretary General Kukuh Kumara told Post on Oct. 11 that New Luxury Tax rules would push manufacturers to produce lower emissions cars so that prices are affordable for the market.

However, the new regulations effect on EV adoption is expected to be minimal, as most EVs would remain costly despite the PPnBM cut, said he.

Some EVs cost some 500 million rupees (rupiah) and they make up a small portion of the market. It will take more than usual to buy electric cars in 2019 until electric vehicles are affordable, said Kukuh.

Electric cars cost roughly three times more than fossil fuel-powered counterparts, according to a study by Jakarta-based Institute for Essential Services Reform IESR Bob Azam, director for technical government affairs at Toyota Motor Manufacturing Indonesia TMMI the top automaker in Indonesia, told the Post on Oct. 12 that EV technology was still novel, which meant buyers had to pay steep prices to own EVs.

Moreover, the limited availability of charging stations in Indonesia, among many other infrastructure problems, hindered EV adoption.

TMMI s Bob suggested the government incentivized buying flexible cars and hybrid fuel cars that can run on high blend of biofuels as a transitory technology to EVs. Electron-electric cars are more comfortable than EVs, but have lower emissions than regular cars.

If the price of regular cars increase, there should be a solution for more affordable low-middle income homes based on new technologies and plans. Do not penalise them, but incentive them instead, he said.

Government Regulation 74 2021, which amends certain clauses in the 2019 PP, raised the tax rate on hybrid vehicles to encourage EV adoption.

The new regulation raises the PPnBM rate for plug-in hybrids from 0 to 5 percent and for complete hybrid vehicles with emissions below 100 CO 2 g km from 2 to 6 percent

Andry Satrio Nugroho, who heads the Center of Industry, Trade and Investment at the Institute for Development of Economics and Finance Indef said the new regulation carried risks related to disrupting daily and business activities because most Indonesians, especially low-middle income Indonesians, relied on fossil fuel powered vehicles.

On Oct 12, talking to Andry, the Post in L.A., the government was encouraged to buy more sustainable goods. That's a good thing, but we should not overlook its potential impact on a particular demographic group, said Andry on Oct 12.

Industry Ministry spokesperson Febri said the government hoped to shield the hike in LCGCs to hit low-middle income groups for example.

As for low-middle consumers, the government has paid attention to them by dropping 3 percent off LCGCs's rate of luxury tax, he said.