W

hile sales of low cost green cars (LCGC) showed an increase in February, the government is now preparing an incentive scheme for carmakers that are willing to develop low carbon emission (LCE) vehicles.

The government aims to complete the incentive scheme this year, but the new car development program will only start in six years.

Industry Ministry senior official Afrida Suston Niar said on Thursday that the ministry was in discussions with related ministries to finalize an incentive formula for those willing to take part in the low carbon emissions car development program.

“Whether the incentives will be based on carbon dioxide [CO2] emissions or on fuel consumption is still being discussed,” she said at a discussion held by Ipsos Business Consulting.

Association of Indonesian Automotive Manufacturers (Gaikindo) secretary-general Noergadjito said Gaikindo wanted the incentives to be based on CO2 emissions.

According to the initial draft, the government is set to provide a 25 percent luxury tax cut for LCE cars with fuel efficiency of 20 to 28 kilometers per liter, 50 percent for those with more than 28 km/liter and 0 percent luxury tax for electric cars.

“Higher tax cuts should be reserved for LCE cars with lower CO2 emissions,” he said.

Afrida, head of the Industry Ministry’s subdirectorate general for four-wheeled vehicles, said the ministry aimed to complete the draft this year. The program will start in 2022 to provide room for the LCGC program to grow.

Both the LCE and LCGC programs, which are stipulated in Government Regulation No. 41/2013, aim to reduce the use of subsidized fuel and the country’s carbon footprint.

Unlike the LCGC program that targets small-engine and sub-Rp 100 million (US$7,558) cars, the LCE program is for various types of cars, ranging from diesel to electric.

Afrida said the LCE and LCGC programs would not disrupt each other as the government planned to provide a transition period for both manufacturers and consumers before launching the LCE.

Initiated in late 2013, LCGC cars like the Toyota Agya and Daihatsu Ayla have gained traction among Indonesia’s young consumers craving affordable city cars.

Sales of LCGCs increased by 8 percent to 28,160 cars in the January-February period of this year, amid a 5.3 percent year-on-year (yoy) drop in overall car sales to 173,262 vehicles during the period, according to Gaikindo data.

Last year alone, LCGC sales declined by only 6 percent against the backdrop of a 16 percent slump in overall car sales, which hit 1.01 million vehicles.

Ipsos Business Consulting director Markus Scherer said the LCGC segment was expected to remain a key driver of new passenger car sales through to 2020.

Sales of LCGC cars were forecast to hit 232,000 units in 2020 from 165,400 units last year, he said.