A Glimpse of an Electric Vehicle, PPnBM

By: Erhan Parasu, employee of the Directorate General of Taxes

The Indonesia G20 Presidency Summit was held in Bali on November 15–16, 2022. The pretentious event drew public attention not only for the great number of prominent delegations who attended but also for its beneficial impact. Among other highlighted parts of the event, there was an intriguing phenomenon while talking about the number of electric vehicles that were deployed. It’s well documented that a number of 836 electric vehicle units were borrowed from several automotive companies that had made vehicle procurement agreements with the Indonesian government earlier. The President Jokowi himself were using Hyundai Genesis G80-which is electric powered vehicle- instead of taking his regular Mercedes Benz S600 Guard as his presidential car. It appeared Indonesia was trying to send an implicit message about how concerned the nation was, especially when issues about reducing carbon emissions arose. It’s likely that it became the best choice due to the fact that Indonesia had taken a green step by making a commitment to carbon reduction, as stated in the previous conference of parties (COP).

The fact that gasoline vehicles will soon be replaced by friendlier environmental vehicles is inevitable. So that, It is necessary Indonesia should support electric vehicle ecosystem over the old gasoline one. To encourage the electric vehicle ecosystem, the government has issued the Sales Tax on Luxury Goods (PPnBM) Regulation by establishing Government Regulation Number 74 (GR-74) for the year 2021 as an amendment to Government Regulation Number 73 (GR-73) for the year 2019. The following updated fiscal incentive provides lower PPnBM rates on both plug-in hybrid electric vehicles (PHEV) and hybrid electric vehicles (HEV). Therefore, HEV has received larger benefit than PHEV because of having its tax base is at 0%. So, it doesn’t really matter how high the PPnBM rates of EV is due to the fact that it always serves zero in PPnBM owed. 

Upon reaching the end of 3rd quarter of 2022, electric vehicle sales dramatically increased  for almost 6 times than in entire year of 2021. Yohannes Nangoi, Chairman of the Association of Indonesia Motor Vehicle Industry (GAIKINDO), said electric vehicle sales in 2022 were significantly higher than in 2021, which were only able to be recorded at less than 1.000 units. The number of sales in existing year was confirmed to keep going raising considering that (2022) year hadn’t been closed. It is obvious that the GR-74 fiscal incentive is only one among other factors, whether they are fiscal factors or non-fiscal factors, that have successfully supported and raised the bar of a conducive electric vehicle ecosystem. However, the incentive still has the right to be claimed as a proper contributor. Moreover, it seems that the GR-74 fiscal incentive has given a right-on-target result from the general perspective of reaching the zero carbon emission goal.

But let’s take a look deeper. The GR-74 result might be slightly different when it comes to another perspective led by a simple question: "Who actually receives most of which benefits?" It’s essential that electric vehicle price ranges is nearly between Rp238 million to almost Rp3 billion where the majority of which put their prices above Rp500 million. Furthermore, public affordability in car purchases is less than Rp300 million based on GAIKINDO data. So, it’s likely that electric vehicle main consumers, who affordable enough to have at least one electric vehicle, are mostly in upper class layer and they might be imposed on 4th to 5th layer of recent individual tax income bracket. At this point, the need for further research is crystal clear, but the initial hypothesis has logically emerged.

When the majority of actual beneficial owners of GR-74 are arguably considered as in upper class layer, The slight distortion of PPnBM philosophical position in context of reducing Value Added Tax (VAT) regressive nature could possibly appear. One of the books that explains the nature of PPnBM is "Pokok-Pokok PPN Pajak Pertambahan Nilai Indonesia," 2012 revised edition, which was written by Untung Sukardji. It’s said that PPnBM is a complementary tax along with VAT.

The purpose of imposing PPnBM is to reduce the regressive nature of VAT, as its rate is either 0% or 11% (respectively revised by UU HPP), which is mainly caused by its nature as a consumption tax. It differs from tax income progressive rates, which would consider them subject to tax conditions; VAT, on the other hand, wouldn’t consider them subject to tax conditions.

For instance, let's say there are two people, person A and person B. Both of them are going to buy the same item, which costs Rp 5 million. The person A has greater amount of  monthly income than person B, which is Rp10 million against Rp 6 Million. Both will bear the same burden of VAT, which is Rp 550.000. This will lead person A to have a lower tax burden than person B. From the following example, we may conclude that VAT burden won’t go linear with personal income as it grows, which means the person with a bigger income will take on less VAT burden. Hence, PPnBM exists to reduce the regressive nature of VAT by imposing an extra tax on certain luxury goods, most of which can usually only be bought by upper-class people. At this point, it’s apparent that Electric Vehicle PPnBM arguably serves in contrary of its original purpose by imposing 0% tax base on upper class people. Furthermore, it’s likely that EV PPnBM had to choose between two sides: either accelerating zero carbon emissions or reducing the regressive nature of VAT.

Since the gap between most indonesia car consumer affordability and the majority of electric vehicle prices have become main root of dualism, need of solution would be wisely discussed. There are two main suggestions, in this writer’s humble opinion, that could probably minimize the dualism. The first is to give better support by encouraging non-fiscal incentives that might accelerate the growth of an electric vehicle-supporting environment so that electric vehicle production costs can be effectively suppressed. The second suggestion is to provide layers in electric vehicle PPnBM Tax Base Rates based on some determining fairness factors. For instance, higher electric car prices could be imposed by higher PPnBM tax base rates, while other electric vehicles, which have more affordable prices that suit most Indonesian car buyers' affordability, could still be given 0% of the PPnBM tax base or at least lower rates than the higher ones. These theoretical recommendations could probably provide better tax benefit distribution to more appropriate PPnBM beneficial owners, so that the PPnBM may still serve its purpose of reducing the regressive nature of VAT. Otherwise, PPnBM stands for Sales Tax on Luxury Goods, doesn’t it?

*)This article is the author's personal opinion.