The Association of Indonesian Automotive Industries (GAIKINDO) has asked Jakarta to temporarily exempt all tax collections related to cars in the face of much reduced sales due to the coronavirus pandemic.
Animesh Kumar, Director of Automotive Consulting at GlobalData, notes that the decline to sales this year follows decline in 2019. "Considering the decline in vehicle sales in 2019 as well as YTD 2020, the demand for temporary exemption of all taxes related to cars is not unreasonable," he says.
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Light vehicle sales declined by 9.7% in 2019 and due to the impact of COVID-19 pandemic, sales declined by 84.9% during the period of April-July 2020 compared to the same period last year.
Kumar maintains there is a need to give a further push to demand and private consumption in Indonesia. Thus far, he says, Indonesia's stimulus package and measures such as subsidising car loan to boost vehicle demand have largely proved to be inadequate.
"There is a need for more effective measures to stimulate demand," Kumar says . "The temporary exemption of or may be even substantial reduction in taxes related to cars will make the cars more affordable and will encourage customers to purchase vehicles."
Kumar also notes that due to hygiene concerns, people across the world are increasingly looking towards personal mobility as an option and he believes this is a factor in Indonesia, too.
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By GlobalData"Temporary exemption in taxes will significantly reduce vehicle costs and act as a catalyst to boost vehicle sales. However, it will impact revenues at central and local levels. Indonesia's GDP contracted 5.32% in Q2 2020, sharpest downturn since the Asian Financial Crisis of 1998. With poor economic performance, declining private consumption, job losses and upended business activities, the government will have to make calculated decisions and tax exemption may well be beyond the reach. While the government mulls over the demand, it is important that the industry stakeholders continue to lure potential buyers through new vehicle launches, aggressive promotions, which include vehicle trade-in offers, cash discounts, low/zero interest rates, low monthly instalments, extended service and free accessories."
