Indonesia introduced new incentives for low-emission vehicles and hybrid automakers. Car makers and buyers can enjoy these benefits beginning January 2025. These incentives will be applied to hybrid cars, electric vehicles (EVs), and electric buses.
2025 TAX INCENTIVES
At a press conference in December last year, the Ministry of Industry announced a new incentive for hybrid automakers. They encouraged hybrid car manufacturers to register their vehicles to avail of the 3 per cent Luxury Goods (PPnBM DTP) incentive.
Additionally, both EVs and hybrid vehicles can avail of incentives from two schemes under Value Added Tax (VAT). The government increased its VAT rate from 11 per cent to 12 per cent. This is part of their Law No.7 of 2021 concerning Harmonisation of Tax Regulations.
“The increase was carried out gradually, starting from 10 percent to 11 percent in April 2022, and now to 12 percent in January 2025. The aim is so that it does not have a significant impact on people’s purchasing power, inflation, and economic growth,” said Indonesian President Pranowo Subianto.
Additionally, there will be a 5 per cent VAT discount for low-emission vehicles (hybrids and EVs) and houses. The government will impose this scheme in two phases this year. Firstly, there will be a 100 per cent discount for the period of January to June 2025. Then, the rate will drop to 50 per cent from July to December 2025.
Other financial incentives include 15 per cent sales tax for fully imported or knocked down vehicles, 0 per cent import tax on fully built battery-powered vehicles, and 100 per cent sales tax exemption for fully imported or knocked down EVs.
However, under Regulation No. 36 of 2021, if hybrid car makers are to take part in these incentives, low-emission four-wheel vehicles must have a local component value (TKDN). Only fully imported battery-powered vehicles with a 40 per cent TKDN rate may avail of the 10 per cent VAT reduction.
The projected total budget for the new incentives comes to IDR 2.52 million or AUD 251,064.67.
GAIKINDO’S CONCERNS
Though there are new benefits for both manufacturers and buyers, The Association of Indonesia Automotive Industries (GAIKINDO) noted that these incentives may impede new car sales. In January to November of the previous year, Indonesia saw a disappointing difference of 135,730 units compared to the same period in 2023. Furthermore, GAIKINDO stated this 14.74 per cent decrease may be due to the country’s declining economy in 2024.
“This policy must be responded to wisely by the regional government, because they are the ones who understand better and have the data to implement tax options,” said Kukuh Kumara, GAIKINDO’s Secretary General on the new incentives for 2025.
Outside of Indonesia, GAIKINDO’s biggest worry is the impact of US President-Elect Donald Trump’s term on the global economy. For that reason, the association notes that another Trump presidency might strengthen the US dollar. A stronger US dollar may pose as an obstacle against the weakening Indonesian Rupiah and the country’s economy.
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