Indonesia to Levy 0% Export Duty and Sales Tax on EVs

Indonesia's electric vehicle (EV) market is still in an early phase of its growth, partly because the elevated cost of EVs deters potential buyers. While the purchase price is often mentioned as a critical barrier to EV adoption, it is only one of many expensive items consumers consider in a vehicle purchase.

Recently, the Indonesian government has decided to exempt electric cars (EVs) from two local taxes, namely the vehicle tax (PKB) and the vehicle ownership transfer charge (BBNKB). The Home Affairs Ministerial Regulation (Permendagri) No. 6/2023 specifies these additional exemptions. On April 26, 2023, the Permendagri was formally adopted. Let’s explore the official notification in detail.

Government Initiatives to increase EV sales

Indonesia is planning more tax incentives to attract international electric vehicle producers, striving to support its appeal to top producers, including Tesla Inc. and BYD Co.

According to government officials, the cabinet has decided to offer 0% export duty and value-added tax exemption to electric carmakers that would set up onshore, who asked not to be named as the policy hasn’t been announced. It is unclear how long the incentives would be proposed and whether other conditions would be attached.

One of the government's initiatives to increase EV sales is tax exemption, particularly for electric automobiles, which are viewed as luxury items and are typically more expensive than conventional vehicles. 

Due to their scarcity and limited selection of marketable models, direct subsidies are likewise unlikely to be extended to electric vehicles.

Therefore, it is intended that the new regulation will accelerate the adoption of environmentally friendly EVs, supporting the government's continued efforts to cut carbon emissions in order to meet the zero emissions objective by 2060 or earlier. 

People stated that investors in the future may import automobiles to sell locally as long as they finished building a factory in two years otherwise they risk fines that the government is still deciding how to implement. The cabinet’s decision must be formalized, and the policy may change before it’s announced.

President Joko Widodo is raising the stakes in the race to secure a slice of the global EV supply chain. Indonesia competes against its neighbors, Vietnam, the Philippines, and Thailand, a regional automotive powerhouse.

While leading EV manufacturer BYD signed an agreement to explore investment potential in May, no official deal has been disclosed thus far. Indonesia has been in discussions with Tesla for years in an effort to convince the US automaker to establish a local operation.

Expanding EV Incentives in Indonesia

The PKB and BBNKB exemptions are a new addition to the Indonesian government's list of EV incentives. 

Battery-based EVs were previously charged a 20–30% tax base (DPP) levy starting in 2020. Even though Law No. 1/2022 on Financial Relations between the Central Government and Regional Administrations (HKPD) states that the exemptions begin on January 5, 2025, the rate then fell to 10% in 2021–2022.

Additional incentives that are already in place include a 0% down payment option for EV financing, decreased electricity rates of up to 30% for charging EVs during off-peak hours or outside of peak loads, exemptions from import duties, and cash subsidies for those buying electric motorcycles.As a result, Permendagri No. 6/2023's new law is likely to hasten Indonesia's adoption of electric vehicles. Also, if you need Indonesia export data or import data, you can easily obtain it from our dedicated dashboard. We have a database of export and import data.

ICCT Statement on EV Policy:

The International Council on Clean Transportation has been following these national and local policy statements and actions and benchmarking them against international best practices for EV policy development. The ICCT has determined five critical near-term steps for Indonesia to continue its progress. 

1. Adopting national commitments on unique vehicle EV share:  by COP28, including LDVs, MHDVs, and 2-wheelers (the country's largest vehicle market and contributing to 26% of all transportation-related greenhouse gas emissions).
2. Reviewing  EV Target: targets to clearly describe EV production, exports, and national sales shares by 2030 and 2035, aligning with upcoming national EV targets.
3. Securing long-term funding and incentives: Financial and fiscal (VAT) incentives now in place drive the national budget. Adopting a budgeting program that levies high CO2 vehicle emissions and uses that money to pay for EV purchase incentives is one option to maintain incentives over the long run and support EV targets. 
4. Focusing on public transit electrification: By 2030, Greater Jakarta's administration plans to electrify every new bus. The Ministry of Transportation might establish comparable national electrification goals for public transportation, extending them to include motorbikes, taxis, and ride-hailing vehicles.
5. Adopting a national EV infrastructure growth plan: This would furnish a national framework for EV infrastructure development while supporting provincial and municipal decision-making and could include complementary policies (e.g., direct charger subsidies and preferential electricity rates).

Conclusion

It was a historic announcement made by the Indonesian government. By taking immediate action, the Indonesian government would meet its ZEV and climate targets. They would create momentum to influence the national automotive and electric vehicle supply chains to align with their objectives. There is no question that electric vehicles will play a major role in transportation in Indonesia. Based on Indonesia trade data, the Indonesia Electric Vehicle market was valued at US $533.19 million in 2022. The electric vehicle market is estimated to expand at a CAGR of 20.96%. The market is expected to reach a value of US$2020.13 million in 2029.

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