Indonesia To Switch To Emissions-Based Rates For Luxury Car Tax

Later this month, Indonesian motorists will see the country’s ‘luxury GST’ motor vehicle tax scheme (PPnBM) revised to incentivise low emissions, instead of the usual calculations based on low engine displacement that’s also familiar to Malaysians.

The move, which will be implemented onwards from October 16th according to Indonesian publication Kontan, sounds like a pretty significant step for renewing owners and buyers of new vehicles alike but is in line with the country’s intention to lower its collective carbon output.

Under government regulation there, specifically No. 73 of 2019 concerning a special ‘goods and services’ tax, all motor vehicles were classified as ‘luxury’ items which were calculated based on their engine displacement. However, to spur the automotive industry in the recovery phase of the pandemic, a discount was introduced for vehicles under 1500cc that is being extended until December 2021 - sounds pretty familiar.

That said, it’s unclear to us how this alteration to tax structure will impact Indonesian car buyers’ wallets, as a previous Reuters report stated that the outgoing displacement-based scheme could account for 10% to up to 30% of vehicle cost.

Jongkie Sugiarto, chairman of the Association of Indonesia Automotive Industries (Gaikindo), expressed his agreement on this matter, saying: “There are types of motorised vehicles whose PPnBM rates have gone up, but some have gone down.”

Alongside this, the government is reported to also be readying a coinciding change to their Regulation No.74 of 2021 that will effect tariffs for battery electric vehicles (BEVs), plug-in hybrid vehicles (PHEVs), and hydrogen fuel cell vehicles (FCEVs), hopefully to encourage the adoption of these post-combustion transportation solutions and the development of its required infrastructure.

The switch to an emissions-based vehicle tax is very similar to how the majority of governments in the developed world structures the charges it levies to motorist, so in that view this is a step in the right direction as engine displacement is an antiquated and poorly correlates to a vehicle’s price, performance, or environmental impact.