Press conference
The Minister of Finance (Menkeu) has issued a regulation regarding Sales Tax incentives for Luxury Goods or PPnBM. The government-borne tax incentive (DTP) is contained in Minister of Finance Regulation 20/PMK.010/2021. The publication date is 25 February 2021. The validity period is from 26 February 2021 until the end of the 2021 fiscal year.
The government is using the momentum ahead of Eid homecoming in 2021 to boost car sales by reducing one of the components of car prices, namely PPnBM. “In accordance with the Minister of Finance’s regulatory considerations, the government wants people’s purchasing power in the motor vehicle industry sector to increase. “The further effect is that the national economy grows so that many workers can be saved from layoffs,” said Prianto Budi Saptono as Executive Director of the Pratama-Kreston Tax Research Institute on Friday 26 February 2021.
“According to economic law, if prices fall, demand increases and supply also increases so that production capacity also increases,” continued the holder of a Doctor of Administrative Science degree from the University of Indonesia. So, there will be a multiplier effect. The impact is broad because production capacity increases. Other automotive supporting industries are also becoming more enthusiastic so they can expand job opportunities.
Demand for cars is predicted to increase due to the momentum of the Eid homecoming and Eid al-Fitr holidays on May 12-13 2021. “This is indeed a simalakama policy,” continued Prianto. On the one hand, because of the COVID-19 pandemic, the government implemented PPKM (implementation of restrictions on community activities), including community mobility to travel between cities. On the other hand, the government encourages people to buy new cars at relatively cheaper prices so they can return home for Eid to their hometowns.
Coordinating Minister for Economic Affairs Airlangga Hartarto, as reported by several media, hopes that the PPnBM incentives for motorized vehicles can increase consumption by middle-income people. Automotive industry utilization is also increasing and economic growth in the first quarter of 2021 will be boosted.
What are the PPnBM incentives for motorized vehicles?
There are two groups of motorized vehicles that receive PPnBM incentives borne by the government. The first category is sedans or station wagons with spark-ignition or compression-ignition motors (diesel or semi-diesel). The second group is cars transporting less than 10 people (including the driver), other than sedans or station wagons, with spark-ignition or compression-ignition motors (diesel or semi-diesel) with a 1 (one) drive axle (4×2) system.
The two categories of motorized vehicles above must meet other requirements. First, the cylinder capacity must be 1,500 cc or less. Second, the local content (local purchase) is at least 70% according to the decision of the Minister of Industry.
“If you look at the existing provisions, the two groups of motor vehicles that receive PPnBM incentives actually owe 10% PPnBM. This can be referred to Article 2 of Government Regulation no. 22/2014 (“PP-22/2014”). Therefore, the term used for tax incentives is not exempt PPnBM facilities as regulated in PP-22/2014. Instead, the Minister of Finance used the term PPnBM DTP. In other words, the PPnBM owed is still paid by the government with the budget ceiling set in the State Revenue and Expenditure Budget (APBN), unless otherwise specified in the APBN Law.
The term DTP tax can be referred to Minister of Finance Regulation no. 228/PMK.05/2010 which regulates the implementation and accountability mechanism for DTP tax.
How much is the PPnBM incentive?
There are three incentive periods and three PPnBM incentive groups. First, for the March–May 2021 Tax Period, the government will cover 100% of the PPnBM owed. Second, for the June–August 2021 Tax Period, only 50% of the outstanding PPnBM will be borne by the government. Third, for the September–December 2021 Tax Period, PPnBM borne by the government is only 25%.
According to Prianto, when buying a new car in 2021 because there is a PPnBM incentive, prospective new car buyers must know the components of the car’s selling price, especially the taxes. Apart from the 10% PPnBM, there are three other taxes that car buyers must bear. The first tax component is the 10% Value Added Tax (VAT) which is collected by the Directorate General of Taxes. The second tax element is Motor Vehicle Tax (PKB) at a maximum of 2%. The third tax is Transfer of Title Fee (BBN) at a maximum of 20% for new vehicles. The second and third tax components are collected by the Provincial Government.
As an illustration, for example, the selling price of a car is IDR 100 million. PPnBM worth IDR 10 million, VAT IDR 10 million, PKB IDR 2 million, and BBN IDR 20 million. The costs of issuing STNK (Vehicle Registration Certificate), processing BPKB (Proof of Motor Vehicle Ownership), and other costs to simplify calculations are ignored. Based on this information, in summary, the selling price of an off-road car is IDR 100 million, while on the road (OTR) IDR 142 million. If the PPnBM incentive is 100%, the OTR selling price will automatically be reduced by IDR 10 million to IDR 132 million.
Source person:
Dr. Prianto Budi Saptono Ak., CA., MBA
Executive Director of Pratama-Kreston Tax Research Institute
