Gov’t Expands Tax Reduction Coverage for Automobiles

Following the provision of fiscal incentive to reduce tariff of the Government-borne luxury goods sales tax (PPnBM DTP) on automobiles last month, the number of sales of cars skyrocketed to 150 percent, indicating a growth in automotive industry.

With that regard, the Government announced that it relaxes local purchase requirements to a-bare-minimum of 60 percent and expands car segments eligible for the tax reduction namely the 4×2 type (two-wheel drive) and 4×4 type (four-wheel drive) with a car engine of 1,500 cc to 2,500 cc.

The policy aims to continue boosting people’s purchasing power and speeding up recovery of automotive sector.

The tariff reduction is based on Regulation of Minister of Finance Number 31/PMK.010/2021 on Sales Tax on Luxury Goods for the Delivery of Taxable Goods Classified as Luxury to be borne by the Government in Fiscal Year 2021 which will take effect in April 2021. Regarding local purchase, the provisions are regulated under Decree of Minister of Industry Number 169 of 2021.

For automobile with car segment of ≤1,500 cc engine and under a 4×2 drive (sedans), a 100 percent tax reduction is provided for April to May 2021, a 50 percent reduction is provided for the second three months (June-August 2021), and a 25 percent reduction is provided for the third three months (September-December 2021).

For automobile with car segment of 1,500-2,500 cc engine and under a 4×2 drive, a 50 percent tax reduction is provided for April-August 2021, and a 25 percent reduction is provided for September-December 2021. Meanwhile, automobile with car segment of 1,500-2,500 cc engine and under a 4×4 drive will receive tax reduction of 25 percent for April-August 2021, and 12.5 percent for September-December 2021.

Minister of Finance Sri Mulyani Indrawati asserted that the issuance of Regulation Number 31/PMK.010/2021 will strengthen stimulus policy and expand the coverage.

“The Government expects the policy can stimulate people’s consumption particularly from domestic automotive industry. It is necessary to speed up national economic recovery,” she said.

In the meantime, Minister of Industry Agus Gumiwang Kartasasmita said that local purchase policy aims to speed up recovery of automotive sector, increase utilization of local purchases in production of vehicles, and contribute to the national economic recovery.

“Based on the evaluation, tax reduction policy has successfully increased people’s purchasing power. It also brought positive impact to the economy, the increase in production, and increase in sales of automotive industry that will bring multiplier effect to other industries,” he added.

He expressed belief that the policy will be well-implemented and bring benefits to the public as the consumers, to the industry, and the Government.

Coordinating Minister of Economic Affairs Airlangga Hartarto also echoed similar sentiment by saying recovery of automotive industry will bring significant effect to other industries, for example raw material industry that contributes to 59 percent for automotive industry.

“Supporting industries to automotive industry has absorbed 1.5 million workforces and contributed Rp700 trillions to the GDP,” he said on Friday (2/4).

For the record, automotive industry is a labor-intensive industry that absorbed more than 1.5 million workforces in five different sectors; tier 1 (550 companies and 220,000 workers), tier 2 and 3 (1,000 companies and 210,000 workers), manufacturing sector (22 companies and 75,000 workers), dealers and authorized service stations (14,000 companies and 400,000 workers), and dealers and unauthorized service stations (42,000 companies and 595,000 workers). (MINISTRY OF INDUSTRY PR/MINISTRY OF FINANCE PR/UN) (RAS/LW)