The Indonesian Ministries of Finance and of Industry have announced that a tax exemption has been approved to reduce fuel consumption in the country and also to encourage the production of environmentally-friendly “low-cost green cars” (LCGC).

The incentives for LCGC production form part of the Ministry of Industry’s plans for Indonesia to become a regional production base, in competition with Thailand and Malaysia, while increasing employment and the use of local content. Current automotive assembly plants in the country largely rely on imported parts.

According to the Ministry of Industry, the Government’s LCGC incentives include an exemption from the luxury-goods sales tax (which currently ranges from 10 percent to 30 percent on cars with an engine capacity of less than 1,500 cc) for cars of less than 1,200 cc and able to travel 20 km per one liter of fuel. A tax exemption would also be granted to diesel vehicles of up to 1,500 cc, if they also have a minimum fuel consumption of 20 km per liter.

While it is expected that the Government could lose revenue through the scheme, the hoped-for additional investment in the Indonesian automotive industry should boost value-added, employment and economic growth over the medium-term.

Source: TaxNews