Indonesia to abandon engine capacity-based tax for cars, CO2-based tax by Oct 2021

Come 16-October 2021, Indonesia will drop the current engine capacity-based tax structure for cars to migrate to a more current method based on CO2 emission. First announced in 2019, the move to adjust the country’s Luxury Goods Tax for cars will bring Indonesia’s tax structure in-line with other developed countries.

Indonesia is the third country in the region to adopt CO2 tax for cars, after Singapore and Thailand.

Like any revision in tax structure, some models will benefit more than others.

Sedans and 4WD/AWD SUVs for example, will no longer be penalized as Indonesia has removed body type categorization from its new tax structure.

Previously, MPVs, SUVs, and hatchbacks were taxed at between 10 - 125 percent, depending on engine capacity, while sedans and 4WD/AWD vehicles were taxed higher, between 30 - 125 percent, also depending on engine capacity.

This explains why the Toyota Avanza and Toyota Innova dominates Indonesian landscape, while the Honda Civic Sedan is a rare sight. The adjustment will lead to cheaper prices for sedans like a Honda City or Honda Civic, and AWD models like the Mitsubishi Outlander.

Low Cost Green Cars (LCGC), the tax category for the Perodua Axia’s Indonesian cousins, the Daihatsu Ayla and Toyota Agya, will see an increase in price as they will no longer enjoy the 0 percent tax, but will be taxed at 3 percent.

LCGC are defined as city cars with engine capacities no more than 1.2-litre, with a minimum fuel efficiency of at least 20 km/litre. This also explains why Malaysia’s Perodua Axia uses a smaller 1.0-litre engine, while its Indonesian cousins use a larger 1.2-litre engine.

The so-called Low MPV and Low SUV segments dominated by the Toyota Avanza and Toyota Rush respectively will also see an increase in prices. Previously, Low MPV and Low SUVs were taxed at 10 percent. This category will be abolished, and such vehicles will be taxed like regular passenger cars, starting at 15 percent.

However, most consumers won't experience any increase in prices this year as the Indonesian government has temporarily waived luxury goods tax on locally-produced cars with engine capacities below 1,500 cc, until 31-December 2021, part of the country's Covid-19 economic relief measures.

The new tax structure will see passenger cars taxed between 15 to 70 percent, with emphasis on promoting battery-electric vehicles.

To qualify for the lowest 15 percent tax bracket, petrol-powered cars will have to meet a minimum fuel efficiency of at least 15.5 km/litre, emitting no more than 150 g/km of CO2 (17.5-km/litre for diesel, CO2 limit unchanged).

Subsequent tax brackets will be in 5 percent increments, for every 50 g/km increase in CO2 emissions until it hits 25 percent / 250 g/km. After that, the tax bracket jumps to 40 percent, increasing in 10 percent increments.

Fuel efficiency limits starts at a minimum 11.6 – 15.5 km/litre for the lowest 15 percent bracket, increasing to 9.3 – 11.5 km/litre, 9.2 km/litre or poorer (for diesels: 13.1 – 17.5 km/litre, 10.5 – 13 km/litre, 10.5 km/litre or poorer) for subsequent brackets.

Hydrogen fuel cell electric vehicles (FCEV), Battery Electric Vehicles (BEV), and 100 percent biofuel / flex-fuel vehicles are taxed at the minimum 15 percent. 

Prices of hybrids to go up, but there's a way around it

Hybrids are also taxed at the minimum 15 percent but the Indonesian government makes distinction between full hybrids (Toyota hybrids), mild hybrids (48V EQ Boost Mercedes-Benz C200), plug-in hybrids (Mitsubishi Outlander PHEV).

Hybrid vehicles could see their prices increase, unfortunately. Although the Luxury Goods Tax remain unchanged, there will be adjustments in the calculation method for the vehicle's tax imposition.

Previously, the tax imposition base for regular hybrids was set at 13.3 percent of the car's selling price, and 0 percent for plug-in hybrids. This has now been increased to 40 – 53 percent for full hybrids (depending on fuel efficiency and CO2 emission), 53 to 80 percent for mild hybrids, and 33.3 percent for plug-in hybrids.

However, this increase will be waived for manufacturers who have committed to invest at least IDR 5 trillion (about RM 1.47 billion) in local production of battery electric vehicles, and will commercialize these zero emission vehicles within 2 years.

The tax imposition base for BEVs and FCEVs are 0 percent.

Commercial vehicles will be taxed at between 15 to 30 percent.

Where to Malaysia?

Closer to home, Malaysia is still stuck with an archaic, colonial-era tax structure that is based on engine capacity.

Malaysia is one of the few countries in the world where a 2.0-litre Porsche 718 Cayman (RM 522,590) is cheaper than a 3.0-litre Toyota GR Supra (RM 589,987).

Also Read: HR-V buyers suffer, Cullinan owners get rewarded by Malaysia's backwards road tax system

Also read: Malaysians pay over RM 10 billion in car taxes every year. How did we end up like this?

In the US, the equivalent starting price would be USD 59,900 for the 2.0-litre 4-cylinder 718 Cayman and USD 51,090 for the 3.0-litre 6-cylinder GR Supra.

And we haven’t even get to how convoluted road tax calculations for battery electric vehicles versus combustion engine models are.

Also Read: Is the road tax actually cheaper for electric cars in Malaysia?