Let the tax go

September 23rd, 2013 § 0 comments


"Jakarta gets ready for cheap car assault" says a news headline. The article talks about the ongoing spat between some central government officials and the Jakarta administration over the central govt’s tax incentive for so-called ‘low-cost green cars’.

Low cost car sounds good, right? Except Jakarta administration doesn’t think so. Governor Jokowi was quoted to say that it’s not what the people need, as if one person can determine what millions of others need. He believes that letting manufacturers offer cheap cars to consumers will make traffic congestions in Jakarta even worse.

One of Jokowi’s campaign promises was to fix the city’s aptly described traffic nightmares by setting up extensive public transport networks. People have yet to see this promise made good by the governor, which is reasonable given the complex problems relating to land acquisitions, financing schemes and overlapping government transportation policies.

However, the low cost car scheme is part of the central government’s tax incentive program that was put in place in the middle of this year with the intent of encouraging investment by car manufacturers here to produce high-volume products for the local and ASEAN markets. They do this by lowering the ‘luxury goods sales tax’ from 25 to 100 percent, depending on the fuel economy of the car.

Anything that results in less tax going to the government is always and everywhere a good thing, whatever the reason or intent. It leaves more money at the hands of private people who will make the best choice on how to use the money they have themselves made, instead of giving it to a bureaucrat to spend at his arbitrary discretion.

It’s wrong to support Jokowi’s cause by calling for the tax cut to be scrapped. What people should be calling for is for the government to get rid of tax for all kinds of cars, not just the ones they arbitrarily call ‘green’, remove all the complicated bureaucracy like price controls and licensing requirements for public transport that make it hard for private investors to invest in transportation profitably and let the market do what it does best: allocate resources effectively.

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