The Indonesian government announced its long awaited incentives for small cars, following the issue of a presidential decree earlier this week which was quickly put into legislation.

Industry minister M S Hidayat confirmed luxury tax would be scrapped on passenger cars and station wagons with an engine capacity of up to 1,200cc and with a maximum consumption of 20km/l of petrol. 

Diesel and bio-diesel vehicles up to 1,500cc with a similar fuel consumption will also be exempt from luxury tax.

The tax cut should lead to lower prices for small cars and help drive sales growth in the second half of the year.

PT Astra Daihatsu Motor, the country’s largest vehicle manufacturer, is expected to start production of small cars at its newly-built plant in Karawang following the announcement. The company had delayed the introduction of the Daihatsu Ayla and Toyota Agya at the plant because of the wait for the new law.