Indonesia could export cars to Australia as the two countries finalise the Comprehensive Economic Partnership Agreement.

Indonesia’s 30% tax on sedans is waived when cars are exported overseas, meaning the country’s sedan manufacturers could boost production selling to Australia.

Potential tax cuts on new cars in Indonesia are expected to increase domestic uptake and production, taking dependence away from neighbouring Thailand’s supply.

The tax cuts could see Indonesia become the biggest car market in Southeast Asia, Jakarta Globe reports.

Currently, sedans with engines over 1500cc are subject to 30% “luxury tax”, while those between 1500cc-3000cc attract a 40% tax when delivered to dealerships.

This has encouraged the popularity of minivans, people-movers, and low-emission vehicles, all of which only see up to 20% tax depending on their size.

Indonesia builds 1.5 million cars per year, but has the capacity to reach around two million vehicles annually.

Half of that capacity is people-movers or MPVs (multi-purpose vehicles).

“We are discussing the tax revision with the Finance Ministry; we aim for a decision to be made by the end of this month,” Indonesia’s industry minister Airlangga Hartarto says.

“Australia is one of our targets, because car factories there are closing down. Now is a good opportunity to enter their market,” he told local press.

Indonesia’s automotive industry is based in West Java, Bekasi, Karawang and Purwakarta provinces where the likes of Honda, Toyota, Suzuki, Mitsubishi, Mercedes-Benz and Fuso, Nissan, Hino, Daihatsu and Isuzu all build vehicles, including motorcycles, trucks and cars.

Astra Daihatsu Motors builds approximately 330,000 vehicles a year out of its Sunter-based factory, while its Karawang operation makes circa-200,000.

Toyota, Honda, Suzuki and Nissan build over 200,000 units a year.