Gov’t Extends Tax Incentive for Automotive Industry to December 2021

The Government has decided to extend 100 percent cut on the Government-borne luxury goods sales tax (PPnBM DTP) for motorized vehicles to December 2021.

“The incentive period is extended to stimulate middle class consumption along with positive developments in handling the COVID-19 pandemic,” Head of Fiscal Policy Office of Ministry of Finance Febrio Kacaribu said in his official statement on Friday (17/09).

The extended period is stated in the Decree of Minister of Finance Number 120/PMK.010/2021. The vehicles that receive PPnBM incentive are passenger motor vehicles with engine capacity up to 1,500 cc (100 percent), 4×2 passenger motor vehicles with engine capacity >1,500 cc to 2,500 cc (50 percent), and 4×4 passenger motor vehicles with engine capacity >1,500 cc to 2,500 cc (25 percent).

In January-July 2021, retail car sales grew cumulatively to 38.5 percent compared to the same period last year; which means the tax discount incentive had created a very positive impact in motor vehicle sales. Thanks to the increased sales, motor vehicle manufacturers could resume operations with higher capacities. Thus, cumulative car production from January to July 2021 was able to grow 49.4 percent (year-on-year/yoy).

This increased production aimed not only to meet domestic demands but also exports of Complete Knockdown (CKD) vehicles which grew 169.7 percent in the same period. In addition, the performance of Gross Domestic Product (GDP) growth in the industrial sector and trade in transportation equipment increased by 45.7 percent and 37.9 percent (yoy) in the Q2 of 2021.

Although the motor vehicle industry has gradually recovered, production rate in the second quarter of 2021 had not returned to pre-pandemic level. Therefore, the Government has decided to extend the PPnBM incentive period since it has been proven to have a significant impact on demand and production as well as employment rate.

In addition, the prerequisite for the PPnBM motor vehicles’ incentive with a high level of domestic product content also provides a large multiplier effect to supporting sectors, such as metal goods, basic metal, rubber, and financial services industries. The automotive sector is also a strategic sector that has relatively high added value and level of technology adoption.

“The momentum for national automotive sector recovery is expected to continue along with the more controlled pandemic situations and a growing global economy which boosts demand for export of national automotive products,” Febrio added. (Ministry of Finance PR/UN) (GWH/MMB)