Indonesia automotive sector to stay afloat with extension of tax relaxation, says GlobalData

Following the news that The Ministry of Industry Indonesia plans to extend the validity period of the purchase tax relaxation policy on luxury goods (PPnBM) until 2022;

Bakar Sadik Agwan, Senior Automotive Consulting Analyst at GlobalData, a leading data and analytics company, offers his view:

“The temporary waiving off sales tax on motor vehicles (PPnBM) created the expected upthrust for the Indonesian automotive industry, one of the worst-hit by the COVID-19 pandemic in the ASEAN region. The year 2020 saw sales reeling down to half the level of 2019 volumes both due to the pandemic and the weak private consumption because of sluggish economic growth.

“The government agreed tax exemption for 9 months starting from March 2021 and had positive impact on the domestic sales, which in the first month post-implementation grew by 28.85% while that in April rose by 227% over same period previous year. The extension, if approved, will revive the automotive sector and subsequently drive the economic recovery of Indonesia. While extension will be a plus for the auto OEMs, component manufacturers and related industries, government will incur additional revenue loss and thus needs to make a clear prioritization. Sales tax on vehicles in Indonesia varies between 10% to 125% of the vehicle price, depending upon the type of the vehicle.

“It is evident that the government’s earlier stimulus package and measures such as subsidising car loan to boost vehicle demand largely proved to be inadequate and the tax relaxation turned out to be right ingredient for demand boost. According to Gaikindo, retail sales between January-April 2021 grew by 5.9% year-on-year and that the monthly sales volume now stands close to pre-COVID levels of 80,000 per month. The extension will also give a breathing period to OEMs, who have been combating supply chain disruptions due to pandemic and chip shortages and will give sufficient time to ramp up supply to match it with growing demand.”