Indonesia plans to roll out new regulations that offers tax breaks for hybrid EVs, in the latest effort to promote the development of electric vehicles in the country. In a meeting with Parliament on Monday, Indonesian finance minister Sri Mulyani said that investors who build electric cars in Indonesia feel that the current framework is unfair as there is no difference in the tax rates between hybrid and fully electric cars.
While battery-powered EVs continue to be exempt from luxury tax, the plug-in hybrid EV will see an increase to 5% from 0%. Full and mild hybrid types will be taxed at a rate of 6% to 12%, from a previous range of 2% to 12%. In addition, the government will also provide tax holiday incentives for up to 10 years if EV manufacturers make at least an IDR 5 trillion (USD 346.2 million) investment in the country.
“The new tax scheme reflects the government’s efforts in boosting investment for battery-powered EVs,” said Bawono Kristiaji, partner and researcher at tax consulting firm DDTC. “More investment will make Indonesia a center its manufacturing and it will have a multiplier effect on the economy, with the creation of employment, the emergence of new industries in the EV ecosystem, and expansion of the tax base.”
It also encourages adoption among consumers, nudging them from hybrids to EVs. “The luxury rates now have different levels. This tiered tariff scheme will affect the selling prices,” Kristiaji added.
President Joko Widodo has expressed his interest in making Indonesia a top player in the global electric car market, especially given that the country is the world’s largest producer of nickel, an essential component for the production of lithium-ion (Li-ion) batteries that power electric vehicles. In 2020, Indonesia’s nickel reserves amounted to approximately 21 million metric tons out of the total 94 million metric tons globally.
Indonesia aims to be a regional EV hub in 2030 and it has been rolling out various initiatives to boost its production in the country. In 2019, Widodo introduced a series of incentives for EV manufacturers, transport companies, and consumers, including reduced import duties on unassembled and semi-assembled vehicles and import tariff deductions for machinery and materials used in EV production.
These initiatives are attracting global automotive companies like Toyota and Hyundai to pour billions of dollars into the country, and there is appetite for more. South Korea’s LG Energy Solution and China’s largest car battery maker Contemporary Amperex Technology (CATL) have also agreed to invest in the country. Furthermore, the government is reportedly negotiating with Tesla about investments in the energy storage system, and also approached Volkswagen for a potential EV-related engagement.
Cheaper price and better infrastructure
Tech companies like Gojek and Grab have also expressed their commitment to the initiative. Grab Indonesia launched “GrabCar Elektrik powered by Hyundai” in January last year, and claims to operate over 5,000 electric cars, motorcycles, bicycles, and scooters across Indonesia. Meanwhile, Gojek is planning to test electric motorcycles this year and is working with the state-owned gas and oil company Pertamina for the commercial pilot in Greater Jakarta.
However, it won’t be easy to make consumers switch on a large scale due to its high price, said the association of Indonesian automotive industries Gaikindo. The majority of consumers are buying cars at prices between IDR 150 million and IDR 250 million (USD 10,386 to USD 17,310), while electric cars are currently selling for about IDR 500 million (USD 34,620). “We have huge potential for electric cars, but prices must be lowered significantly so it will be more affordable for the wider communities,” Gaikindo chairman Jongkie Sugiarto told KrASIA.
Another challenge is the supporting infrastructure like charging stations. The state electricity company PLN currently only runs 37 stations across the country, although it targets to have 2,400 by 2025. Addressing these two major problems will get consumers more interested.