JAKARTA: The government plans to lower import tariffs for incompletely knocked-down (IKD) vehicle parts in a bid to make sedans more affordable and drive up demand.
Currently, demand for sedans is low because the car type is subject to luxury tax; sedans with an engine below 1,500 cc are taxed 30 percent, those with 1,501 to 3,000 cc 40 percent and those above 3,000 cc 70 percent.
Meanwhile, taxes for MPVs and hatchback cars stand at 10 percent. I Gusti Putu Suryawirawan, the Industry Ministry’s director general of metal, machinery, transportation equipment and electronic industries, said on Wednesday that the government would start implementing the policy in the first or second quarter of this year.
“In around March or April, we plan to issue a new regulation [regarding the IKD imports] on the automotive industry to help the industry grow,” he said.
The government had planned to revoke the import tariff for IKD parts in April last year, but no progress has been made on the plan. Suryawirawan said the plan to lower the import tariff had come at the request of a number of automotive companies that wanted to assemble vehicles in Indonesia for export.
At present, many European sedan makers in Indonesia import completely built-up (CBU) or completely knocked-down (CKD) units from producing countries, as sedans make up less than 5 percent of total car sales in Southeast Asia’s largest economy.
Indonesia imported 75,911 CBU units and 75,324 CKD units in the January-November period of 2015, according to data from the Association of Indonesian Automotive Manufacturers (Gaikindo). Imports of car components, including IKD items, meanwhile, hit 48,180 during the same period.
IKD item imports are currently subject to a 7.5 percent import tariff. Gaikindo co-chairman Jongkie Sugiarto said his association welcomed the government’s initiative to lower the tariff on imported IKD items, but also demanded a reduction in the luxury tax imposed on sedans with engines below 1,500 cc and sport utility vehicles (SUVs).
“The low domestic demand for sedans is mainly due to their high price resulting from higher taxes compared with their multi-purpose vehicle peers,” he said.
Jongkie argued that if the government wanted to attract investment in sedan production facilities to serve both the domestic and global markets, it needed to lower the taxes so that sedan prices could be more competitive. Suryawirawan of the Industry Ministry said the ministry was still considering the possibility of offering tax incentives for sedan-type cars.
While most Indonesians choose MPVs over sedans for their greater passenger capacity, global markets are in fact more in love with sedans and SUVs. Indonesia is currently the second-largest car production hub in Southeast Asia after Thailand, with Japanese brands like Toyota and Honda having their own MPVs production plants in the country.
In the first eight months of last year, Indonesia produced 740,385 cars most of them MPVs, according to Gaikindo data. During the same period, Thai car production hit 1.26 million units, a large number of which are sedans exported overseas.