Why Are Cars So Expensive in Indonesia? Explained

Why Are Cars So Expensive in Indonesia – Cars are an integral part of modern society and serve as a symbol of status and wealth for many people around the world.

However, in Indonesia, owning a car is a luxury that comes with a steep price tag.

Compared to other countries in Southeast Asia, car prices in Indonesia are among the highest, making it one of the most expensive places to own a car. In this article, we will explore the factors driving the high cost of cars in Indonesia.

Reason Why Are Cars So Expensive in Indonesia

Why Are Cars So Expensive in Indonesia

Taxation Policies

Indonesia has a complex taxation system, and cars are subject to various taxes and tariffs, making them expensive to import and purchase.

The high taxes on cars are mainly due to the government’s efforts to protect local automotive manufacturers and support the country’s economic growth.

The first tax on cars in Indonesia is the Luxury Goods Sales Tax (LGST), which is a value-added tax that applies to all luxury goods, including cars.

The LGST is set at 10% and is applied on top of the sales price of the car. Additionally, the government imposes a Value Added Tax (VAT) of 10% on all imported cars, which is payable on the total cost of the vehicle, including the LGST.

As a result, cars in Indonesia are subject to a total tax rate of 20% before any other taxes and tariffs are added.

In addition to these taxes, the government imposes various tariffs on imported cars to protect local manufacturers.

The Import Duty Tax (IDT) is a tariff that applies to all imported goods, including cars and is calculated as a percentage of the vehicle’s value.

The IDT ranges from 0% to 40% depending on the type and value of the vehicle.

The government also imposes a Luxury Goods Sales Tax (LGST) on imported cars, which ranges from 10% to 75% depending on the value of the vehicle.

All these taxes and tariffs significantly add to the cost of cars in Indonesia, making them unaffordable for many people.

Moreover, the Indonesian government often increases these taxes and tariffs to generate revenue and protect the local automotive industry, further driving up the prices of cars.

Limited Production and Distribution

Why Are Cars So Expensive in Indonesia

Another factor contributing to the high cost of cars in Indonesia is the limited production and distribution of cars. Indonesia has a small domestic car industry, and most of the cars sold in the country are imported.

This limited supply of cars leads to high demand, and as a result, car prices in Indonesia are often higher than in other countries.

Additionally, the limited production of cars in Indonesia means that many popular car models are not available in the country.

This results in people having to import the cars they want, further driving up the cost of cars.

Moreover, the distribution channels for cars in Indonesia are also limited, with only a few authorized dealerships selling new cars. This creates a monopoly for these dealerships, enabling them to charge higher prices for cars.

High Transportation Costs

Why Are Cars So Expensive in Indonesia

Indonesia is an archipelago, consisting of more than 17,000 islands. This geographical landscape makes it challenging to transport goods, including cars, across the country.

As a result, transportation costs in Indonesia are high, contributing to the high cost of cars in the country.

The transportation costs for cars in Indonesia include the cost of shipping, handling, and customs clearance.

The cost of transporting cars from the ports to dealerships is also high due to the country’s poor road infrastructure. This adds to the cost of cars, making them even more expensive.

Brand Loyalty

Brand loyalty is also a factor driving the high cost of cars in Indonesia. Many Indonesians are brand-conscious and prefer to buy cars from well-established brands, such as Toyota, Honda, and Mitsubishi.

This brand loyalty enables these companies to have more market power, allowing them to charge higher prices for their cars.

Moreover, these companies have a significant presence in Indonesia, making it easier for them to distribute their cars and provide after-sales services.

As a result, many consumers in Indonesia are willing to pay a premium for these well-established brands, even if their cars are more expensive than similar models from other brands.

This, in turn, has created a price premium for these brands in the Indonesian market, contributing to the overall high cost of cars in the country.

Which countries are the most expensive to buy a car?

The most expensive countries to buy a car typically have high taxes and tariffs on imported cars, which drive up the price. Some of the most expensive countries to buy a car include Singapore, Norway, and Denmark.

What is the most popular vehicle in Indonesia?

The most popular vehicle in Indonesia is the Toyota Avanza, which is a small multi-purpose vehicle (MPV) produced by Toyota.

Can a foreigner buy a car in Indonesia?

Yes, a foreigner can buy a car in Indonesia. However, there are some requirements that must be met, such as having a valid residency permit and a local bank account.

What is the best country to buy a car?

The best country to buy a car depends on various factors, such as the availability of the car model, pricing, taxes, and tariffs, and the country’s regulations on car ownership.

Some countries that are often cited as good places to buy cars include the United States, Canada, and Germany, due to their wide range of available car models and relatively low prices.

However, it’s essential to research and considers the specific factors relevant to each individual’s situation before making a purchase.


The high cost of cars in Indonesia is the result of various factors, including taxation policies, limited production and distribution, high transportation costs, and brand loyalty. The Indonesian government’s efforts to protect the local automotive industry by imposing high taxes and tariffs on imported cars have made cars unaffordable for many Indonesians.

Additionally, the limited supply of cars, coupled with the monopoly of authorized dealerships, has created a market environment that allows companies to charge high prices for their cars.

The high transportation costs and brand loyalty among Indonesian consumers have also contributed to the overall high cost of cars in the country.

To reduce the cost of cars in Indonesia, the government could consider reducing taxes and tariffs on imported cars and incentivizing local manufacturers to produce more cars. Additionally, the government could invest in improving the country’s road infrastructure to reduce transportation costs.

Furthermore, increasing competition in the automotive industry could help to reduce the price premium associated with well-established brands.

In conclusion, the high cost of cars in Indonesia is a complex issue that requires a multi-faceted solution. Addressing the various factors that contribute to the high cost of cars in the country is essential to make cars more affordable for all Indonesians.