automotive

The Automotive Sector Requires Additional Incentives; Here Are The Reasons

The sales performance outlook for 2025 is increasingly perceived as challenging. The increase in the value-added tax (VAT) to 12 percent, along with the implementation of motor vehicle tax options (PKB) and the transfer tax for motor vehicles (BBNKB) in various regions, are among the factors influencing market responses. 

Consequently, a range of additional incentives is necessary to sustain the performance of the automotive sector. This topic was discussed during a recent national automotive forum organized by the Industrial Journalists Forum (Forwin).  

During the discussion, it was also highlighted that the decline in the middle class poses a threat to the automotive sector, as this demographic has traditionally been a significant buyer of motor vehicles and a key driver of Indonesia's economy. 

In 2024, the middle class is projected to number 47.85 million, a decrease from 57 million in 2019. This decline is a contributing factor to the stagnation of the car market at the one million unit level from 2014 to 2023, and it is expected to lead to market contraction in 2024. 

Therefore, without additional incentives, there are concerns that car sales in 2025 could fall below 800,000 units, continuing the negative trend observed in 2024, where the market experienced a 13.9 percent decline to 865,723 units. 

Conversely, with the introduction of additional incentives, the automotive market could potentially recover, with estimated sales reaching 900,000 units. 

To date, the government has introduced a 3 percent luxury goods sales tax (PPnBM) discount for hybrid vehicles; however, this assistance is considered insufficient. 

For instance, the government could provide further incentives such as a luxury goods sales tax (PPnBM) discount for locally assembled 4x2 vehicles, as well as tax discounts for first-time buyers and incentives for manufacturers that localize production. This could also include support for research and development activities within the country. 

Additionally, the government could bolster the manufacturing sector and mitigate deindustrialization by extending the loan tenure for motor vehicle financing to 7-8 years, which would enhance consumer purchasing power. 

With this approach, the minimum income required to secure a car loan would be reduced by 19-25 percent compared to a five-year loan term. 

Tag: Automotive VAT