In a strategic move to attract more investment and foster the growth of the electric vehicle (EV) industry, Indonesia has announced new tax incentives for automakers planning to establish EV plants. The presidential regulation, signed on December 8 and released this week, outlines measures to encourage investment in the burgeoning electric vehicle sector.
Incentives for EV plant investments
Under the newly introduced regulation, companies that have already invested in EV plants, are in the process of expanding their EV investments, or are planning to make such investments will be eligible for tax incentives. The incentives extend to the imports of completely built-up EVs until 2025. This marks a departure from earlier rules, which only applied incentives to imports of knocked-down vehicles, assembled in the destination country.
Removal of import duties and sales tax
The key feature of the new rules involves the removal of import duties and the luxury goods sales tax on completely built-up EVs brought into the country. This move aims to make the import of fully assembled electric vehicles more financially viable for automakers, aligning with Jakarta’s ambitions to position itself as a hub for the electric vehicle market in Southeast Asia.
Incentives linked to plant development
The number of vehicles companies can import under these incentives will be contingent on the size of the investment and the developmental progress of the EV plant. The approval for the import quotas will be overseen by the investment ministry, ensuring a strategic alignment with the country’s economic development goals.
Enabling market growth through EV imports
During a recent webinar on Indonesia’s economic prospects, Rachmat Kaimuddin, a deputy at the Coordinating Ministry of Investment and Maritime Affairs, emphasized that the new decree is designed to support automakers in building their market share in Indonesia by facilitating the import of electric vehicles. The overarching strategy is to create a progressive environment that attracts EV manufacturers, subsequently paving the way for the development of the battery industry and the establishment of a robust supply chain.
Delay in local content requirements
In addition to the tax incentives, the new regulations also bring about changes in the local content requirements for EVs. The initial deadline mandating companies to produce at least 40% of the content of EVs in Indonesia has been extended to 2026 from the original target of 2023. Similarly, the local content threshold increase to 60% has been delayed to 2027, pushing back the initial target of 2024.
Ambitious EV production targets
Indonesia has set ambitious targets for the EV sector, aiming to produce around 600,000 EVs by 2030. This target represents a significant leap, considering that only a fraction of this number was sold in the country during the first half of 2023. Notable investments have already been made by companies like Hyundai, and there are additional commitments from China’s Neta EV brand and Mitsubishi Motors. Indonesia is also actively courting major players like Tesla and China’s BYD to further bolster its position in the growing electric vehicle market.
Indonesia’s strategic move to introduce tax incentives for EV manufacturing aligns with its broader vision of becoming a prominent player in the electric vehicle landscape. The regulatory changes aim to attract investments, enable the import of fully assembled electric vehicles, and foster the development of a thriving EV industry in the country. The adjustments in local content requirements further reflect the government’s commitment to creating a conducive environment for the growth of the electric vehicle sector in Indonesia.