Despite having their own special segment, luxury car manufacturers acknowledge they are concerned over the government's proposed plan to increase sales tax on luxury goods or PPnBM.
"Of course we are worried, if the PPnBM goes up our car prices will automatically increase by 200 percent," said General Manager of PT Toyota Astra Motor-Lexus Indonesia, Adrian Tirtadjaja as quoted by okezone.com.
The tax regulation that has a direct impact on the automotive industry is indeed a critical topic following the House of Representatives' (DPR) decision to approve the government's move to progressively increase car sales tax on Aug. 18, 2009.
The House Special Committee for Taxes has decided on a progressive tax rate of a maximum of 10 percent based on the number of cars owned, the size of the cars, cylinder capacity and the age of the cars, while the government plans to increase the PPnBM by a maximum of 200 percent from the previous 75 percent.
This means the automotive industry growth will be maintained at a slower rate for a longer period. The burden of tax on consumers whose purchasing power has already been dampened will certainly affect car sales and indirectly will have an impact on the macro national automotive industry here.
In fact earlier there was a breath of fresh air in this industry, especially for Japanese made luxury cars, as the government gave them special treatment for above 3,000 cc types. They were exempt from duty in connection with an Economic Partnership Agreement (EPA) between the two governments. This tax holiday of course will increase the demand for their luxury cars.
President Director of PT Toyota Astra Motor (TAM) Johnny Darmawan said that the bilateral agreement also had an impact on other industries, because the agreement covered all fields connected with the two countries' trade.
"The automotive industry is just a small part and the figures are not fantastic as the luxury car market share is relatively small, at between 5 percent and 10 percent. The market is still dominated by the medium and lower prices cars with below 3,000 cc engines," said Johnny.
The bilateral agreement, which came into effect last year, has also been made between the Japanese government and Singapore, Malaysia, Mexico, Thailand and Chile.
However, the agreement has had no significant impact on the automotive sales here as the below 3,000 cc luxury cars still dominate the market.
Car manufacturers here still believe that there is a large gap between the price tags of the two segments, including the PPnBM. "The PPnBM for below 3,000 cc luxury cars is only around 75 percent, that's why the price is still highly competitive compared to the real above 3,000 cc luxury cars," said one automotive industry observer.
This differs from Adrian's view as mentioned earlier. If the tax is increased by 200 percent, Adrian said, the demand will certainly decrease. That's why, the government has to be careful before making this decision. "An increase is fine, but not that high, because our automotive industry has only just started to enjoy better sales, so the taxes should not be a new hampering factor," he stressed.
Perhaps the government's intention to raise tax rates has something to do with the number of luxury cars that crowd Jakarta's streets, where almost all luxury brands can be found. Obviously, next to Lexus, owners of Volvo and Lamborghini and so forth are equally worried.
The government's reasoning is based on the fact that gasoline prices are still subsidized, so again part of the solution lies in a tax increase.
The high growth of car and motor cycle sales has made the government worried about the increase in subsidized gasoline. Sales records show that there has been an increase of 48 percent in car sales and 50 percent in motor cycle sales as per August 2008 which means the subsidies will also be a larger figure.
"Whether we raise the premium gasoline price or the tax rate it comes to almost the same thing. The tax increase is much fairer as the owner of the luxury car pays it and bears the burden," said Jusuf Kalla when he was still the vice president.
It is indeed, politically and economically, a dilemma, especially with regard to the automotive industry, while the government actually has two tax instruments, namely the progressive tax rate and the PPnBM.
Car manufacturers here can only hope that the tax increase, which will put pressure on the demand, can be equalized by a slight improvement in the market, which is again a slim hope. Indonesian Automotive Industry Association (Gaikindo) Chairman Bambang Trisulo asserts that that the tax rate regulation and increase should be fair for all brands and manufacturers.
The Industry Ministry has suggested that the PPnBM on cars with an engine capacity of below 1,500 cc should be abolished. Director General of Heavy Transportation and Telematics at the ministry Budi Darmadi said that such cars currently cannot be categorized as luxury items.
The Value Added Tax (PPN) and PPnBM, which will be applicable on April 1, 2010 states that luxury goods are not essential needs and they are only consumed by a certain segment of the public, the high income bracket, and that they are goods or items to indicate status or prestige. "That's why cars with a smaller cc are no longer luxury goods and should be levied with lower PPnBM or, if necessary, no PPnBM at all," he said.
Meanwhile, Bambang Trisulo asserts that there should be less or no PPnBM, because there are already many kinds of levies in the automotive industry here.
"The various levies include taxes, customs duty and excise duty based on the cc and the year the car is made," he explained.
It is only understandable, he said, that the application of a high PPnBM will impair the competitiveness of Indonesia's automotive industry compared with neighboring countries such as Thailand where numerous automotive investors are thriving.
