The Ministry Of Industry Proposes Fiscal Incentives To Boost Domestic Car Sales

Acting Director General of Metal, Machinery, Transportation Equipment and Electronics (ILMATE) Ministry of Industry Putu Juli Ardika (second from the left). (Photo: Theresia Agatha/VOI)

The Ministry of Industry (Kemenperin) has proposed providing fiscal incentives in the form of a sales tax on luxury goods borne by the government (PPnBM DTP) to boost the purchase of cars produced in Indonesia.

This is necessary to overcome the stagnation of the domestic car market at the level of 1 million units a year in the last 10 years.

It is believed that this incentive is able to boost domestic car sales, which in the end can stimulate the national economy.

This condition occurred in 2021 when the government disbursed the same incentives to revive the car market which had slumped due to the COVID-19 pandemic.

When the PPnBM DTP program was implemented, based on data from the Ministry of Industry, car sales during March-December 2021 jumped 113 percent from the same period in the previous year.

In 2022, the program will successfully increase sales during January-May to 95,000 units.

Minister of Industry (Menperin) Agus Gumiwang Kartasasmita said the growth of the transportation industry could not be separated from the contribution of the automotive sector.

Throughout 2023, the two-wheeled vehicle sector posted domestic sales of 6.2 million units and exports of 570,000 units.

Meanwhile, the four-wheeled vehicle sector achieved domestic sales of one million units and exports of 505,000 units for the Complete Built Up (CBU) vehicle type and 65,000 units for the Complete Knock Down (CKD) type.

Minister of Industry Agus said, in the last 10 years, domestic sales of cars in Indonesia still tend to hold at one million units.

"Of course, strategic steps are needed to be able to increase sales," said Minister of Industry Agus in his remarks read by the Acting Director (Plt) Director General of Metal, Machinery, Trasnportation and Electronics Equipment (ILMATE) Putu Juli Ardika in a media discussion on Solutions to Overcome Car Market Stagnation at the Ministry of Industry office, Jakarta, Wednesday, July 10.

Meanwhile, based on academic studies from LPEM UI, the stagnation of car sales in Indonesia is influenced by the weakening purchasing power of Indonesians.

This causes people who cannot buy new cars to switch to buy used ones.

In an effort to overcome this, LPEM UI automotive observer Riyanto stated that a program is needed to stimulate the purchase of new cars in the community.

"Of course, the provision of stimulus must prioritize Indonesia's commitment to reduce carbon emissions," he said.

Meanwhile, General Secretary of the Association of Indonesian Automotive Industries (GAIKINDO) Kukuh Kumara said the highest domestic car sales of 1.23 million occurred in 2013.

This was supported by economic growth which was close to 6 percent as well as the KBH2/LCGC program.

After that, the car market did not move from the level of 1 million units, and even had slumped to 532,000 units in 2020 due to the COVID-19 pandemic.

Then, the car market will bounce back in 2021 due to PPnBM incentives.

However, this trend has not changed much entering 2022 until 2023, where car sales only reach 1 million units.

Entering 2024, Kukuh said, domestic car sales had actually declined. As of May 2024, car sales fell 21 percent to 334,000 units.

According to him, this was triggered by various factors, such as an increase in global interest rates, a surge in NPL, tightening lending from finance companies.

"One of the trigger factors for the stagnation of the car market is that the price of new cars is not affordable by people's per capita income. The gap between household income and new car prices is getting wider," he concluded.