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Luxury car firms in Indonesia shift gear to adapt to tax hike

Publication Date : 28-04-2014


With the recent increase in the sales tax on high-end cars, automobile sellers are preparing new strategies to, at least, maintain their sales target this year.

The tax increased on April 19 from 75 to 125 per cent and has since affected four-wheelers with gasoline engine displacement of above 3,000 cc and diesel engine displacement of above 2,500 cc.

The move is in line with the government's efforts to curb the importation of consumer goods in view of the country's widening current account deficit.

The tax increase would result in a significant jump in car prices although the impact on buyer demand and consumption would be temporary, according to Frost & Sullivan associate director of the automotive and transportation division for Asia Pacific Dushyant Sinha.

“Going forward, the increase in luxury tax may affect the product-market strategies of some automakers as they may look at introducing models that stay out of the increased tax bracket,” Sinha said.

Some authorised distributors, such as those selling Jaguar, Land Rover, Lexus and Bentley, said they had prepared a few ways to overcome the impact of the tax increase on sales.

Lisa Wijaya, chief operating officer for Jaguar Land Rover at Grand Auto Dinamika, acknowledged that the tax increase would considerably douse demand as the prices of the cars would climb up by 25-30 per cent.

“We’ve prepared some new models with engines of below 3,000 cc to launch in Indonesia to overcome the effect [of the tax increase],” she said, citing the Range Rover Sport 3.0 unveiled during the Indonesia International Motor Show late last year as an example.

Apart from shifting sales to new models, the firm would only import cars with 3,000 cc engines upon customers’ orders, Lisa added.

Previously, Grand Auto has stocks of those models readily available locally.

Adrian Tirtajaya, general manager of Lexus Indonesia, expressed a similar view with Lisa, saying that the firm would roll out new models with engine displacement of  less than 3,000 cc to boost overall sales.

“We will introduce some new models below 3,000 cc, particularly those using hybrid technology that meet trending global demand nowadays,” he said, pointing out the Lexus ES250 and ES300 that he claimed to be getting good market acceptance.

The new tax has prompted Lexus to raise its prices by between 25 and 30 per cent on cars with engines above 3,000 cc.

However, the new tax, Adrian said, would not prevent automakers from delivering new product lines under the 3,000 cc engine and above category.

Unlike Jaguar, Land Rover and Lexus that have a model mix to offset sales for cars with 3,000 cc engines and above, Bentley could be the most-affected by the tax hike as it only has 4,000 cc engines at the smallest.

Andi Salim, general manager for Bentley at Grand Auto Dinamika, said that since the imposition of the tax increase, the firm had received no new orders for delivery up to the next six months.

“We will only import when we get new orders and the customers agree to pay the price after the tax increase,” he said, adding that the tax pushed up the price of the cars by about 30 per cent.

Andi, however, said that the tax increase would only influence customers’ appetite for six months, while they started to adjust to the new price tag.

To attract buyers, the firm had prepared some new strategies that might give added value for customers, he added.


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