Government Evaluating Plans to Expand Vehicle List Eligible for Tax Incentive

JAKARTA – The Industry Ministry (Kementerian Perindustrian/Kemenperin) and The Finance Ministry (Kementerian Keuangan) is currently evaluating possible measures to expand the criteria of vehicles eligible for the vehicle luxury tax (PPnBM). This measure was suggested during a meeting between President Joko Widodo and Industry Minister Agus Gumiwang Kartasasmita. 

“Plans to go forward with the measure will be based on the increase of vehicle cylinder capacity, along with local purchase, or be based on local purchase rates, and possibly a change in the timeframe,” Minister Agus said through a written statement on Tuesday (3/16). 

The minister explained that such tax relaxation efforts are needed due to the fact that there are many vehicles that have capacities of over 1500 cc and have high local purchase rates (over 50-60%) that haven’t been subjected to such measures. 

Previously, the President had voiced his desire to have 2,500 cc four-wheeled vehicles also be subjected to such tax incentives, on the condition that those vehicles are 70% made from locally-sourced components, as stated in the government’s TKDN rule. 

“The government welcomes the public’s interest in this incentive, which is proven by the fact that we have seen purchase orders rise by 140.8% after the incentives were first introduced,” the Minister added. 

The government is also asking vehicle producers to improve utilization rates so that they are able to fulfill high market demands. 

The vehicle luxury tax breaks took effect on March 1 2021, aimed at owners of locally-made sedans and 4x2-drives with a machine capacity below 1500 cc. To be eligible, vehicles must fulfill government TKDN requirements, with a minimum rate of 70%. 

The incentive will run until the end of 2021 and will be implemented gradually, starting from tax discounts of up to 100% between March and May, 50% between June and August, and 25% between October and December.