Carmakers to bring 'eco' cars to Indonesia

As the Indonesian government readies a regulation that will detail incentives for manufacturers of low-cost and efficient automobiles, carmakers are expected to enter the race to produce low-cost, fuel-efficient cars in the country.

The final version of the regulation, drafted by the Industry Ministry and the Finance Ministry, is ready pending approval from President Susilo Bambang Yudhoyono, according to the Finance Ministry's fiscal agency interim head Bambang Brodjonegoro.

"The regulation is already in the State Secretariat. It only needs signing by the President [for issuance]," said Bambang over the weekend in Jakarta.

It was the latest assurance given by officials on the government's incentives plan after some automobile manufacturers showed interest in developing eco-friendly cars in Indonesia, which is dubbed the world's next auto hub.

Bambang declined to specify details of the new regulation, but hinted that it would considerably cut the luxury-goods sales tax for locally made cars with low carbon emissions. The cars include those running on petrol, gas and electric engines.

The regulation also accommodates a proposal by the Industry Ministry which requires, for example, compliance with the Euro 2 emission standard.

According to the latest draft regulation from the Industry Ministry, manufacturers of petrol-powered vehicles, categorised as "low-cost green cars", can obtain up to a zero percent tax when producing cars with 1,000-cc engines that run farther than 22 kilometers on a liter of fuel, or cars with 1,200-cc engines that run 20 kilometers per liter.

Domestic production should gradually engage at least 80 percent of local components.

The exemption of a sales tax on luxury goods is one of the incentives pushed by the government to foster the development of inexpensive and "green" cars to allow more Indonesians access to affordable vehicles and make the country a regional base for fuel-efficient car production, a new rival to neighbouring Thailand, which has long been touted as the "Detroit of Asia".

Currently, the government imposes a variety of taxes on cars that makes it hard to push down car prices to below 100 million rupiah ($10,325), a benchmark considered affordable to many Indonesians, particularly the emerging middle-class.

As the rule has long been deliberated, some producers are well-prepared to implement eco-car production with Japanese automakers Toyota and Daihatsu, which have dominated the Indonesian market for decades, taking the lead.