Tax Hike Makes Luxury Cars in Indonesia Even More of a Luxury

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JAKARTA – As of April 17, the price of buying a luxury vehicle in Indonesia has gone up – way up. The date marks the activation of regulations issued by the Ministry of Finance hiking the luxury-goods sales tax (LCT) on luxury cars by two-thirds to 125 percent.

Under Indonesia’s tax code, the delivery or import of certain manufactured goods are subject to a luxury-goods sales tax (LCT) of up to 200 percent, in addition to value added tax (VAT). Even prior to the increased rate, luxury cars were already subject to the country’s highest LCT of 75 percent.

The regulations define a luxury car as a vehicle possessing a gasoline engine of 3,000 cc or a diesel engine of 2,500 cc. This includes vehicles manufactured by international brands Jaguar, Land Rover, Lexus and Bentley, among others.

Indonesian government officials have stated that the tax is intended to curb import consumption as a means to lower the country’s trade deficit. With luxury cars holding just 1 percent of Indonesia’s overall car market, however, it is unlikely that the new tax will result in significant government revenue or shake-ups to the Indonesian automotive industry.

Luxury automakers will likely be looking to adopt new strategies in response to the tax increase – expected to raise the price of affected vehicles by 25-30 percent – such as implementing on-demand imports rather than maintaining a local stock of vehicles.

In the long- term, manufacturers may introduce new market-specific models to stay out of the increased tax bracket. The tax hike will hit certain manufacturers harder than others, such as Bentley, whose products all exceed the 3,000 cc limit.

For information on establishing a business in Indonesia or further tax information, please contact Indonesia@dezshira.com.

Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email indonesia@dezshira.com or visit www.dezshira.com.

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