Indonesia Extends Luxury Tax Break on Cars With Smaller Engines

Indonesia has extended relief from a luxury tax on automotive sales for cars with smaller engines, in an attempt to boost demand amid the coronavirus pandemic.

The government will continue to fully bear the tax on sales of new cars with engine capacity of as much as 1,500 cc until August, according to Industry Minister Agus Gumiwang Kartasasmita. It will then cover half of the tax for new purchases made from September to December, he said in a statement on Sunday.

President Joko Widodo’s administration announced the incentive in February to support the automotive sector and related industries, which contribute around 700 trillion rupiah ($49.3 billion) to Indonesia’s annual gross domestic product and employ more than 1.5 million people.

Under the original incentive plan, the government would bear 100% of the tax payment from March until May, then 50% from June to August and 25% from September to November.

In March, the government said it would also pay some of the luxury tax on vehicles with engine capacity between 1,500 cc and 2,500 cc., according to a statement.

Indonesia’s domestic car sales sank by almost half in 2020 compared with the previous year, according to data from Indonesia’s Automotive Industry Association, known as Gaikindo. The decline was driven by reduced consumer demand, as well as factories being shut due to movement restrictions introduced to battle Covid-19.

Sales volume jumped after the policies were put in place, with sales in March rising 73% month-on-month, Gaikindo data showed.

©2021 Bloomberg L.P.

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