JAKARTA: Indonesia has expanded its tax breaks on car sales to include more types of vehicles, the country's finance ministry said, in a bid to accelerate economic recovery and aid its manufacturing industry.

"The government sees that stimulus for the middle class has big potential to boost consumption," the ministry said in a statement late on Thursday.

It said the so-called upper middle class had so far held back from big purchases during the pandemic and preferred to increase their savings.

Southeast Asia's largest economy already introduced a tax incentive scheme for sedans and two-wheel drive cars with engine power below 1,500 cc in February.

This will be expanded to include sales of four-wheel drives and cars with up to 2,500 cc that are manufactured with at least 60% domestically-sourced components, the ministry said.

The tax incentive for the new range of vehicles will be in the form of 12.5% to 50% discount for luxury tax payments, taking effect from April until the end of the year.

Luxury tax rates for all passenger cars with the engine capacity below 2,500 cc has been between 10% and 40%.

Car sales have recovered after a dramatic plunge at the beginning of the coronavirus pandemic, but have yet to return to pre-pandemic levels. Total sales in 2020 were just over 532,000 units, about half of the previous year.

Indonesia's gross domestic product contracted for the first time since the 1998 Asian financial crisis last year, by 2.07% with household consumption and investment declining.

The car market in Indonesia is dominated by Japanese brands, with Toyota, Daihatsu, Mitsubishi and Honda leading sales.