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Analysts warn luxury car tax cut 'off target'
Analysts are skeptical that the latest luxury tax scheme will help boost new car sales when it is enacted on March 1, saying that it won't improve consumer buying power, although Gaikindo seems optimistic.
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New multipurpose vehicles (MPVs) ready for export on April 8, 2020 are parked at Tanjung Priok Port in North Jakarta. (Antara/Aditya Pradana Putra)
T
he government’s plan to cut the luxury goods sales tax (PPnBM) on new cars might not automatically lead to economic recovery, say experts, as job losses, business closures and mobility restrictions amid the prolonged COVID-19 health emergency continued to limit consumer demand.
Coordinating Economic Minister Airlangga Hartarto announced in a statement on Feb. 11 that the luxury tax cut would apply to sedans and two-wheel drive vehicles with engines below 1,500 cc starting on March 1.
Under the new scheme, a 100 percent luxury tax cut applies for the first three months and a 50 percent luxury tax cut applies for the succeeding three months. The government expects the scheme to significantly lower the price of new cars, which are currently subject to a luxury tax that ranges from 10 percent to 200 percent of a good’s sales price in accordance with Law No. 42/2009.
“This program does not offer anything to improve [consumer] buying power, even though the price [will be] lower,” research director Piter Abdullah of the Center of Reform on Economics (CORE) told a virtual press briefing on Tuesday.
Piter criticized the luxury tax incentive for new car purchases as “off target”, as lower-middle income consumers had received “the hardest blow to their buying power” compared to other income classes. Many workers in the lower-middle class, both formal and informal, had lost their sources of income last year through job loss or business closures during the coronavirus-induced economic crunch.
“Lowering vehicle taxes will not restore their buying power,” he stressed.
More broadly, the government expects the luxury tax cut to stimulate household consumption, a key driver of the Indonesian economy that contributes more than 50 percent to gross domestic product (GDP).
