Indonesia: Luxury Sales Tax to be Fully Eliminated on Vehicles with at least 80% Local Content

The government of Indonesia is looking to further stimulate its auto industry by continuing to bear the luxury sales tax (Pajak Penjualan Barang Mewah, or PPnBM) on new vehicles. According to a number of sources including AutonetMagz, Indonesian government is set to eliminate the tax altogether next year.

However in order to qualify, vehicles must have at least 80% of local content. The measure, which was suggested by minister of industry Agus Gumiwang Kartasasmita, will ensure the automotive industry has a positive impact on the domestic economy, which is currently being slowed down by the pandemic.

Agus added that the PPnBM exemption is necessary as there are currently 21 companies involved in the local automotive industry, producing about 3.5 million four-wheeled vehicles every year. He said:

“The automotive sector was also one of the sectors hardest hit at the start of the pandemic, although now it has grown to 64%.”

Auto industry in Indonesia also include the 319,000 parts vendors, which are mostly micro, small and medium enterprises (MSME). The industry also supports 1.5 million workers directly and a further tens of millions indirectly, and has received investments totaling 150 trillion rupiah.

Earlier in September, Indonesia reinstated a full exemption on the luxury goods sales tax for cars with engines up to 1,500 cc. The incentive, which was introduced in March 2021 was already extended to August, was reduced to 25% at the beginning of September but was brought back to 100% to be like this till the end of this year. Indonesia also introduced a new tax structure that is based on a vehicle’s exhaust emissions, replacing the tax structure which was based on the vehicle’s engine displacement.

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