Marianne Kearney, Jakarta – Forking out $60,000 for a five-year-old Mercedes S-Class, bound for the scrap yard is a luxury few Indonesians can afford.

But for the rich, such a car – deregistered in Singapore and smuggled into Indonesia – is a bargain. It costs far less than a new, imported Mercedes S500 that carries a tag of between 700 million rupiah and one billion rupiah.

A ministerial decree enacted in the mid-1980s aimed at protecting local carmakers banned the import of second-hand vehicles. According to the Department of Customs and Excise, only 25-tonne trucks are exempted from this ruling. As a result, Indonesians looking for affordable second-hand cars have turned to smuggled vehicles.

In turn, Indonesian dealers – along with some police and Customs officials who reportedly facilitate smuggling activities – are making good money by selling luxury second-hand Singaporean cars to wealthy Indonesians.

Dealers in Singapore say they sell several cars a week, and it is estimated that around 1,000 to 1,500 cars are smuggled into Indonesia every year.

In Singapore, second-hand car dealers are allowed to export to foreign buyers as long as cars are deregistered and have obtained an export form or Cargo Clearance Permit, which lists the engine number of the car, the Land Transport Authority in Singapore said.

Dealers contacted in Singapore disclosed that they get inquiries and visits from lots of Indonesians every week, mostly from Batam but some from Jakarta as well. They said that Mercedes-Benz models and luxury cars were the most popular among Indonesian buyers.

The smuggling of cars came into focus several weeks ago when former Jakarta police chief Sofyan Yakob was linked to a group which smuggled dozens of cars into South Sulawesi.

Ever since the police launched an investigation into the case, many car smugglers and dealers have gone underground and stopped their activities through Jakarta's Tanjung Priok port.

But even with the crackdown on smuggling through Jakarta, others have found ways of getting around the heightened checks.

"Shipments can be moved to Lampung, Cirebon or Surabaya. Documents are falsified – the forms show that it's not cars being imported but household goods, textiles or toys," one Indonesian car dealer told Tempo magazine.

The dealer said he worked with large-scale smugglers who knew how to work the ports.

The smuggling racket has been helped by some police officers who issue special emergency licence plates to hide the fact that the cars are not new and lack import documents. The emergency licences are only supposed to be issued to state or police officials.

The racket is a significant source of off-budget funds for the police: Each emergency licence plate costs 30 million rupiah, say car dealers.

Smugglers say they can also bribe Customs officials for documents proving the cars are brand new. This costs approximately 100 million rupiah.

On top of this, the smugglers need to buy a number plate for around 500,000 rupiah and police registration which costs a further 2.5 million rupiah.

In one case, even used cars which were a gift from the Japanese government to the Irian Jaya government found their way in the used-car black market in Jakarta.

Despite the lucrative racket, Mr Hari Agung, the director-general for Land Transport Imports, says the Customs Department has no plans to amend the laws blocking the import of second-hand vehicles.

Police chief Da'i Bachtiar also said an investigation by the department is focusing on whether Gen Sofyan violated police rules, and not on whether several smuggling rackets are at work.