Temporary tax relaxation can drive vehicle sales in Indonesia, says GlobalData

Following the news that the Association of Indonesian Automotive Industries (GAIKINDO) asked the government to temporarily exempt all tax collections related to cars;

Animesh Kumar, Director of Automotive Consulting at GlobalData, a leading research and consulting company, offers his view:

“Considering the decline in vehicle sales in 2019 as well as YTD 2020, the demand for temporary exemption of all taxes related to cars is not unreasonable. Light vehicle sales declined by 9.7% in 2019 and due to the impact of COVID-19 pandemic, the sales declined by 84.9% during the period of April-July 2020 compared to the same period last year.

“There is a need to give a push to demand and private consumption. Indonesia’s stimulus package and measures such as subsidising car loan to boost vehicle demand have largely proved to be inadequate and there is a need for more effective measures to stimulate demand. The temporary exemption of or may be even substantial reduction in taxes related to cars will make the cars more affordable and will encourage customers to purchase vehicles.

“Due to hygiene concerns, people across the world are increasingly looking towards personal mobility as an option. Indonesia is not an exception, where vehicle sales doubled in July compared to June 2020. In Indonesia, taxes are imposed at the central and regional level and the total amount is substantial.

“Temporary exemption in taxes will significantly reduce vehicle costs and act as a catalyst to boost vehicle sales. However, it will impact revenues at central and local levels. Indonesia’s GDP contracted 5.32% in Q2 2020, sharpest downturn since the Asian Financial Crisis of 1998. With poor economic performance, declining private consumption, job losses and upended business activities, the government will have to make calculated decisions and tax exemption may well be beyond the reach. While the government mulls over the demand, it is important that the industry stakeholders continue to lure potential buyers through new vehicle launches, aggressive promotions, which include vehicle trade-in offers, cash discounts, low/zero interest rates, low monthly instalments, extended service and free accessories.”

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