Jakarta. The impending value-added tax (VAT) increase set to take effect next year is expected to exacerbate challenges for Indonesia’s already struggling automotive industry amid weak sales performance, an executive from Toyota Motor Manufacturing Indonesia (TMMIN) warned on Tuesday.

Bob Azam, Deputy CEO of TMMIN, urged the government to consider delaying the VAT hike until key economic indicators have fully recovered to pre-pandemic levels. The government plans to raise VAT from the current 11 percent to 12 percent starting January 1.

“It’s simply unwise to raise VAT in the midst of sluggish market demand. The economic slowdown is already evident in the domestic automotive market, where sales have dropped by around 15 percent,” Bob said during a talk show on the IDTV business channel.

He expressed concerns that the VAT increase would further depress sales, forecasting that national car sales might not exceed 850,000 units in the coming year.

“If we don’t implement measures to boost sales growth, Malaysia could surpass Indonesia as the largest automotive market in ASEAN next year. This situation could also deter future investments in our automotive sector,” Bob added.

He noted that a thriving market is a key incentive for attracting global investors.

“Lack of market growth will undoubtedly discourage investors. These elements are interrelated, and the impact of this [VAT increase] could create a negative economic cycle,” he explained. “The belief that a tax hike will automatically increase revenue may be misleading. Weakening market demand could, in fact, lower overall tax revenue.”