The Indonesian ministry of finance plans to further lower automotive sector import tariffs from this month, as part of a broader review of its duties and excise tax rates.

The decision was welcomed by the country's car dealers and distributors, which have suffered from sharply lower sales in recent months in response to higher interest rates and high inflation. Monthly vehicle volume is currently around 35,000 units, compared with an average of 50,000 a month before the sharp interest rate hikes last August.

The decision was, however, followed by complaints from the local automotive industry, led by the ministry of industry's director general Budi Darmadi, who fears the lower tariffs will affect sales of locally made vehicles and motorcycles. But he added that the local automotive industry, faced with a more liberalised trade environment, must improve its competitiveness.

The finance ministry decided to cut import duties on built-up passenger cars with engine sizes between 1500c and 3000cc, which mostly come from Thailand, from 70% to 60%, as part of its regional tax harmonisation programme.

Import tariffs on motorcycles have been cut from 35-60% to 30-50%.

The ministry also indicated that further cuts in import tariffs will follow in the coming years, from up to 80% in all categories to a maximum of 40% by 2010, as part of the country's adherence to global trade agreements.

Currrently, it is luxury cars over 3000cc that have so far incurred import duties of 80%.

Tony Pugliese