Jakarta. The Indonesian Automotive Industry Association (Gaikindo) is keeping its fingers crossed that the upcoming higher value-added tax will have little impact on car sales. 

The government has decided to raise the VAT from 11 percent to 12 percent. This new policy will enter into force in January. Gaikindo’s executive Jongkie Sugiarto recently said the association chose to respect the upcoming VAT hike, while saying that the government had already announced the plans a long time ago. But Gaikindo -- whose members include the Indonesian units of global car brands and vehicle distributors – can only hope for the best. 

“Hopefully, [the VAT hike] will not have too much impact on the national automotive sales,” Jongkie recently said, as reported by state news agency Antara. 

According to Jongkie, it is also up to the respective authorized dealers to come up with the marketing strategies that they would implement after the new VAT’s entry into force.

A 2021 Tax Harmonization Law mandates that the 12-percent VAT should come into effect no later than Jan. 1, 2025. The government last raised the VAT from 10 to 11 percent back in 2022. During a recent hearing session with lawmakers, Finance Minister Sri Mulyani said that the tax harmonization law was the government’s attempt at saving the Covid-hit state budget. By raising the VAT, the government at the time wanted to safeguard the state budget. But as Indonesia nears the new VAT’s start date, calls mount for the government to postpone and review the policy. 

Economist Achmad Nur Hidayat recently warned that the VAT could deal a fatal blow to Indonesia’s minimum wage earners, especially since what they earn still has not risen significantly over the past years. Achmad even said that the current minimum wage was only enough to pay for daily necessities. Analyst Esther Sri Astuti said that companies could cut back production following the weaker people’s purchasing power. This could eventually trigger massive layoffs.

Gaikindo reported wholesale car sales in Indonesia totaled 560,619 units in January-August 2024. Retail car sales totaled 584,879 units over the same period.