Following the release of details on a government regulation encouraging the production of small, cheap, fuel efficient and low-emission cars, car producers on Friday prepared to unleash more investment into Indonesia’s automotive industry.
Under the regulation, signed by President Susilo Bambang Yudhoyono on May 23 and effective immediately, the luxury tax on low-cost green cars (LCGC) will fall by between 25 percent and 100 percent.
The discount will apply to the luxury tax of between 10 percent and 75 percent imposed on cars, except for those used for public purposes, such as ambulances, police cars, fire trucks, and hearses.
“The LCGC project would allow Indonesia to win new investments and add volumes to the market,” Ammar Master, an analyst at LMC Automotive in Bangkok, said in an e-mail to Bloomberg on Friday.
“Toyota and Daihatsu will have the first-mover advantage as both automakers already have their models ready and were awaiting” the new rules, he said.
Japan-based Daihatsu designed the Ayla hatchback to meet the rules of the program — to include fuel efficiency of at least 20 kilometers per liter of gasoline and local assembly. Daihatsu will also produce a version of the Ayla for Japan-based Toyota called the Agya, Toyota said in a statement last year.
The regulation says the cut to luxury tax amounts to 25 percent for cars that can run 20 kilometers on a single liter of fuel, 50 percent for 28 kilometers per liter, and 100 percent for machines managing more than that. That includes hybrid engines using dual gasoline and gas or biofuels.
A more detailed technical specification document is still being drafted by the Industry Ministry. “It will be issued soon,” Industry Minister M.S. Hidayat said in Jakarta, on Wednesday.
The Indonesian Automotive Industry Association (Gaikindo) welcomed the regulation and encouraged its 20 manufacturer members to produce LCGC as soon as possible.
“We’re very happy this was issued. So those that are willing to invest or willing to produce can start immediately,” said Jongkie Sugiarto, Gaikindo’s chairman.
Automakers are waiting on the technical document from the ministry before specifying pricing.
“If the cars are overpriced they won’t be purchased. We are sure the government is already aware of that,” Jongkie said.
Previously, he said, the Industry Ministry indicated that cars benefiting from the LCGC scheme should be sold for less than Rp 100 million ($10,200).
“In the automotive industry here all the brands are competing with each other. Leave it to the market mechanism. The price will also be influenced by a car’s features and by customer desires,” Jongkie said.
Indonesia’s auto market expanded by 25 percent last year to a record 1.1 million cars. Gaikindo expects this year’s sales to match last year’s, but not expand.
Additional reporting from Bloomberg