Damiana N. Simanjuntak
Four of Japan’s top automotive manufacturers are set to produce cheap and green cars in Indonesia by the end of the year.
And while the government has agreed to exempt the vehicles from the luxury tax to boost domestic sales, the vehicle industry has condemned the alternative decision to impose an excise tax.
The four companies — Toyota, Daihatsu, Suzuki and Honda — plan to produce a combined 500,000 low-cost green cars (LCGC) a year with total investment at $1.8 billion, according to Industry Minister M.S. Hidayat.
The plans follow the introduction of a government program offering carmakers incentives if they manufacture LCGC in the country as parts of an effort to make Indonesia an automotive production base for Southeast Asia and promote the use of local content.
“This program will employ many workers, from the primary industry to the spare-parts industry,” Hidayat said on Friday.
Still, the manufacturers are seeking to secure significant incentives from the government before deciding to proceed.
Hatta Rajasa, the coordinating minister of economic affairs, said on Friday that the government would scrap the luxury goods tax for the LCGC and instead apply the excise tax, which would be at a lower rate. Vehicles are deemed as a luxury item are taxed at 70 percent of the purchase price.
Despite claiming support from the four manufacturers, the government’s decision to impose the excise tax rather than scrapping the tax altogether came under attack from the Association of Indonesian Automotive Industries (Gaikindo).
The group said it made little sense to categorize LCGCs as being subject to excise tax, which at present only applies to alcohol and tobacco.
Jongkie Sugiarto, a deputy at Gaikindo, said excise tax ought only be applied to items that have a negative social impact.
“If the luxury goods tax is replaced with excise, it is probably not low-cost cars that the government wants, but high-cost cars,” Jongkie said sarcastically.
Gilbert, head of industrial regulation at Astra Daihatsu Motor, the sole distributor of the Daihatsu brand in Indonesia, echoed Jongkie’s view.
“They cannot impose excise,” he said, adding the government could violate the World Trade Organization principle prohibiting discrimination between imported products. Indonesia imports many completely built up cars and its local assembling plants rely heavily on imported parts.
Budi Darmadi, the Industry Ministry’s director general, said part of the reason why LCGC will be subject to excise tax and not the luxury goods tax was because it reflected the government’s commitment to health and the environment.
To gain the concession, producers will need to meet criteria for efficiency in energy consumption and reducing greenhouse gas emissions. “We have conducted roadshows on this issue for two years. Hopefully before October, the regulation containing the criteria can be released,” Budi said.
With Indonesia’s economy growing at 6.5 percent a year, an increasing number of citizens are moving into the middle class. With help from financiers, many families with more disposable income are keen to buy cars.
Car sales reached a record 894,000 units in 2011, and this year Gaikindo expected sales to rise to 940,000 before hitting 1 million units in 2013. On the figures announced by Hidayat, half of that total would be made up of LCGC vehicles.
On Friday, Japan’s Nikkei newspaper reported that Nissan Motor planned to market cheap automobiles in Indonesia under its Datsun brand by 2014.
The vehicles, tailored for emerging markets, will be priced at around Rp 56 million ($6,200) each and will be built and sold in Indonesia as well as in India and Russia, the newspaper reported.