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Zero tax for eco-cars may worsen traffic

The newly issued government regulation to provide special tax breaks for so-called eco-friendly vehicles may only exacerbate traffic in the capital if authorities fail to take preventive measures, observers say. 

The tax breaks, which slash taxes to as low as zero per cent, will lead to massive vehicle purchases as the selling price could go very low, according to city planner from the Rujak Center for Urban Studies, Dian Tri Irawaty.

She said that the city administration should introduce regulations to prevent worsening traffic.

“Jakarta is not only a province but a capital city. There will always be times when the central government’s regulations run counter to that of the city’s,” Dian said on Tuesday.

“That’s why the governor should think of new policies that don’t run counter the central government’s, but at the same time, can sustain its programmes,” she added.

Indonesian car makers are expected to produce more affordable cars following the government’s new regulation that provides what the former says are long-awaited special tax breaks for environmentally friendly vehicles.

Under Government Regulation No.41/2013, the producers of green automobiles will receive a luxury goods sales tax reduction to as low as zero per cent.

Industry Minister MS Hidayat has said that with the announcement of the tax breaks, the country’s car makers would soon be able to start producing low-cost cars.

He said that the regulation would set the trend for green cars, which can reduce fuel consumption and utilise alternative energy sources.

Dian, on the other hand, said that the government’s objective to reduce fuel consumption might not meet the target.

“It aims to lower fuel consumption, but the users will surely increase too. So it doesn’t have too much effect [on fuel use reduction] except for sales boost,” she said.

As stipulated in the regulation, the biggest tax breaks will go to producers of affordable eco-cars dubbed “low-cost green cars”, which are exempt from taxes. 

The inexpensive, fuel efficient cars are divided into two categories: cars with gasoline engines of up to 1,200 cc and diesel and semi-diesel engines of up to 1,500 cc. Both types of cars should be able to travel at least 20 kilometers per one liter of fuel.

Producers of vehicles that can travel 20-28 kilometers on one liter of fuel are eligible for a 25 per cent sales tax discount, while makers of cars that can travel for more than 28 kilometers per liter of fuel will get a 50 per cent tax cut.

The new tax cuts will effectively help push down the prices of cars to around Rp 100 million (US$10,091), the benchmark set to reach out to the Indonesian masses, particularly the emerging middle-class that is shifting from used cars or motorcycles.

The Industry Ministry’s director general for high-tech industry, Budi Darmadi, is optimistic that the potential demand for affordable eco-friendly cars will reach 300,000 per year by 2017.

Governor Joko “Jokowi” Widodo said that he will take measures to respond to this regulation, but also criticised it, saying that it would only push citizens to buy cars.

He mentioned that the even-odd plates traffic policy and the Electronic Road Pricing (ERP) systems could prevent the massive addition of cars to Jakarta roads.

Transportation expert Djoko Setijowarno echoed Dian, saying that the potentially high number of low-cost green car users would not correlate to fuel consumption reduction.

“This regulation is insensitive and isn’t supporting a governor who wants to develop and organise a better public transportation system,” he said.

Djoko said that the central government should have supported Jokowi’s plans for mass transportation rather than introducing cheap car programmes.

He also urged Jokowi to ask the government to revoke the regulation.

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