Indonesia's low-cost, green-car rule boosts Japanese carmakers

Indonesian President Susilo Bambang Yudhoyono has signed a long-awaited regulation on tax exemptions for the production of low-cost, green cars that will give a boost for Japanese car manufacturers in the country, the industry minister said Wednesday.

Speaking to reporters after meeting the president, Industry Minister M.S. Hidayat said Yudhoyono had signed the regulation May 23 and "from now on, LCGC (low-cost green cars) can be legally produced."

"The current trend is green cars, which can reduce the consumption of fuel," he added.

Under the regulation, special tax incentives will be granted for eco-friendly vehicles such as electric cars, hybrids, biofuel-based cars and compressed natural gas cars.

According to the minister, luxury taxes will not apply to vehicles with engine capacities of up to 1,200 cc and with a minimum fuel consumption of 20 kilometers per liter.

Diesel or semi-diesel vehicles of up to 1,500 cc with a minimum fuel consumption of 20 km per liter will also be eligible for tax exemptions.

Currently, new vehicles are taxed between 10 and 75 percent depending on their engine capacity.

Taxes do not apply to emergency vehicles such as ambulances.

The eco-friendly vehicles, according to the regulation, must also be assembled in Indonesia and meet a minimum standard of local components to receive tax exemptions.

Detailed rules and requirements will be stipulated in implementing the regulations that will be issued soon.

The issuance of the presidential regulation will likely help Toyota Motor Corp. and Daihatsu Motor Corp. as well as Mitsubishi Motors Corp. to produce green cars in Indonesia.

Analysts predict a 30 percent rise in vehicle production.

Toyota and Daihatsu, which have joint ventures with PT Astra International Tbk, have their own production facilities for green cars in Indonesia.

Late last year, Mitsubishi also said it might consider producing the Mitsubishi Mirage subcompact to take part in the low-cost green car program if the regulations were issued.

In 2012, Indonesia's total car sales hit an all-time high 1.12 million, according to data of the Association of Indonesian Automotive Manufacturers, or Gaikindo.

Gaikindo said, however, the national market will likely see slightly lower car sales this year due to a fuel-subsidy cut, higher down payment requirements and the weakening of rupiah exchange rate.

But automakers expect sales will be helped by the new green car regulations.