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Indonesia plans tax breaks for eco-car makers

The Jakarta Post, 8 June 8 2013 - Indonesia's carmakers are soon expected to begin production of more affordable cars, after the government's decision to provide long-awaited special tax breaks for so-called eco-friendly vehicles.

Under a government regulation signed by President Susilo Bambang Yudhoyono on May 23, the producers of green automobiles will receive a reduction of a luxury-goods sales tax to as low as zero.

Industry Minister MS Hidayat said that with the announcement of the tax breaks, the country's carmakers would soon be able to start the production of the low-cost cars because they had prepared the production programme for a long time.

"This rule will set the trend for green cars, which can reduce fuel consumption and use alternative energy sources," he said.

Apart from that, the tax incentives might spur growth in the Indonesian automotive industry, paving the way for the country to become a key player in the inexpensive-eco-car sector in the Southeast Asian market, prominent global research firm Frost & Sullivan estimates.

As stipulated in the rule, the biggest tax break will go to producers of affordable eco-cars, dubbed "low-cost green cars". They will be freed from the duty to pay the luxury tax.

The inexpensive, fuel-efficient cars are divided into two categories: those with petrol engines of up to 1,200cc and diesel and semi-diesel engines of up to 1,500cc. Both types of cars should be able to run at least 20 kilometres per litre of fuel.

The makers of other eco-cars, referred to as "low-carbon-emission cars", will also benefit from the tax cut whenever they utilise a variety of engines, such as advanced diesel/petrol, biofuel, hybrid and gas, with efficient energy consumption.

Producers of vehicles that can run 20-28km on a litre of fuel can obtain a 25-per-cent discount on the sales tax, while makers of cars that can travel more than 28km per litre will enjoy a 50-per-cent tax cut.

The new tax cut will have the effect of pushing down the prices of cars to around 100 million rupiah (Bt313,000), a benchmark considered to put them in reach of the Indonesian masses, particularly the emerging middle class that is shifting from used cars or motorcycles.

Existing subcompact cars in the market that have similar engine capacities are now priced between 135 million and 170 million rupiah.

Automotive giants Toyota Astra Motor (TAM) and Astra Daihatsu Motor (ADM), which are currently developing their new flagship low-cost green cars, the Toyota Agya and the Daihatsu Ayla, could be the first to benefit from the tax breaks.

ADM earlier said that both cars were designed with 84 per cent of their assembly features locally sourced, which meets the requirement in a draft of the technical rule prepared by the Industry Ministry to implement the new rule on eco-car incentives.

The draft demands that carmakers locally source 80 per cent of a vehicle gradually within five years, said Budi Darmadi, Industry Ministry director-general for high-technology-based priority industry.

ADM marketing director Amelia Tjandra said Daihatsu would roll out the Ayla in the next two months after the administrative procedures to access the tax break were cleared.

Daihatsu aims to sell 3,000 Aylas per month, one-fifth of its monthly sales, and once it is attained, it will help the firm maintain a market share of 15 per cent this year.

Other major manufacturers, such as Suzuki and Nissan, are also expected to offer affordable eco-cars soon. Japan's second-biggest auto-maker, the Nissan Motor Co, for example, is preparing its inexpensive eco-cars under its heritage brand, the Datsun, to battle for a piece of the Indonesian market, one of the world's most promising.

Teddy Irawan, the vice president director for marketing and sales of Nissan Motor Indonesia (NMI), confirmed that the car Nissan was preparing could comply with the basic requirements on fuel consumption.

"Hopefully, we can also fulfil other requirements so that we can participate according to our initial plan," he said, adding that the first production of Nissan eco-cars could begin as early as next year.

Car sales in Southeast Asia's second-biggest auto market are expected to climb by about 10 per cent to 1.2 million units this year. In the January-April period, sales surged by 17.79 per cent to 398,108 units from the past year.


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