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Tax cut for new cars to include bigger models
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he government has expanded its temporary luxury tax (PPnBM) cut for new cars to include those with engine capacities of up to 2,500 cc starting on April 1 to boost consumer spending and accelerate the automotive sector’s recovery.
Finance Ministry Regulation No. 31/2021 expands the tax incentive to two-wheel-drive (2WD) vehicles and four-wheel-drive (4WD) vehicles with engine capacities between 1,500cc and 2,500cc.
The ministry previously issued a regulation that granted a PPnBM cut for sedans and 2WD vehicles below 1,500 cc starting March 1.
Read also: Tax cuts for new cars, houses come into effect
“The government hopes that this policy will be able to stimulate public consumption, especially for the domestic vehicle industry. This initiative is important in order to continue accelerating the national economic recovery rhythm,” Finance Minister Sri Mulyani Indrawati said in a press statement on Thursday.
The new regulation grants 2WD car buyers a 50 percent tax cut from April to August and a 25 percent cut from September to December. Meanwhile, 4WD car buyers could get a 25 percent tax cut and 12.5 percent cut during the same time periods.
The government expanded the tax cut to spur spending among Indonesia’s middle-class and upper-class citizens that commonly buy cars in the 1,500cc to 2,500cc range. Such citizens, whose finances are less affected by the pandemic than those of lower income citizens, have been accumulating liquidity in banks since last year.
In comparison, cars below 1,500cc were mostly bought by the heavily-hit lower income earners and were thus, not an optimal means of spurring consumer spending, economists said.
Read also: Analysts warn luxury car tax cut 'off target’
Boosting consumer spending, which contributes more than 50 percent of Indonesia’s gross domestic product (GDP), is key to recovering the country’s economy this year. Consumer spending fell 2.63 percent year-on-year (yoy) in 2020, led by a decline in retail sales, goods imports and wholesale car sales, according to Statistics Indonesia (BPS).
Sri Mulyani first hinted at expanding the PPnBM cut during an online press conference on March 15. The Association of Indonesian Automotive Manufacturers (Gaikindo) were quick to respond to the plan.
“We are grateful for the first relaxation for models below 1,500 cc. If the government were to expand it, we would be delighted,” Gaikindo secretary-general Kukuh Kumara told Tempo.co on March 25.
Aside from boosting consumer spending, the tax incentive also aims to revive domestic industries, whose activities began picking up last month. Indonesia’s manufacturing Purchasing Managers’ Index (PMI) stood at 53.2 in March, its highest level in nearly 10 years.
Read also: Indonesia's manufacturing PMI hits 10 year-high in March
Meanwhile, the Organization for Economic Cooperation and Development (OECD) recently upgraded its economic growth projections for Indonesia to 4.9 percent this year from only 4 percent, on the back of an expected rebound in consumer spending and exports.
