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Indonesia offers EV makers more tax incentives to facilitate local supply chain

Indonesia offers EV makers more tax incentives to facilitate local supply chain


EVs displayed at the Indonesia International Motor Show in February 2023. Credit: AFPThe Indonesian government took another measure to foster a local EV supply chain. Carmakers that plan to make EV investments in the country will be exempted from import duties and some other… 

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Indonesia relaxes tax rules on EV imports to attract investment

JAKARTA, Dec 13 (Reuters) – Indonesia will grant automakers that plan to build electric vehicle plants tax incentives on their imports of completely built-up EVs until 2025, a new presidential regulation showed as Jakarta seeks to attract more investment.

Under the new regulation, opens new tab signed on Dec. 8 and released this week, companies that have invested in EV plants, are planning to increase their EV investments, or planning to invest would be eligible for the incentives.

The new rules will remove the import duties and the luxury-goods sales tax on the built-up vehicles brought into the country and gives incentives on taxes collected by provincial governments.

Earlier rules only granted these incentives to imports of knocked-down vehicles, which are delivered in parts and assembled in the country where they are sold. Indonesia is Southeast Asia’s biggest auto market.

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Indonesia to offer tax incentives for local EVs

The Indonesian government is preparing to introduce tax incentives to encourage local purchases of electric vehicles (EVs) as it plans to incentivise the development of an EV industry and supply chain.

Deliveries of EVs had surged to around 10,000 sales last year but since struggled to maintain growth momentum with just 670 sales in the first two month of 2023, according to industry association Gaikindo.The locally made Hyundai Ioniq 5 is currently the best selling EV in the country with 450 sales year to date.The government is drafting legislation to cut sales tax from 11% to 1% on locally assembled EVs, including buses, which have minimum Indonesian content of 40%

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Indonesia Market Prospects for EV Sales and Manufacturing

Indonesia is competing against countries like Thailand and India to develop its electric vehicle industry, and provide a viable alternative to China, the world’s foremost EV producer. The country hopes its access to raw materials and industrial capacity will allow it to become a competitive base for EV makers and allow it to build up a local supply chain. Supportive policies are in place to encourage production investments as well as local sales of EVs.

Domestic market outlook

Indonesia is actively working to establish a notable presence within the electric vehicle (EV) industry, with a goal of reaching 2.5 million electric vehicle users by 2025.

Yet, the market data suggests that a transformation in auto consumer habits will take a while. Electric vehicles make up less than one percent of the cars on Indonesia’s roads, per an August report from Reuters. Last year, Indonesia recorded just 15,400 electric car sales and approximately 32,000 electric motorcycle sales. Even as prominent taxi operators like Bluebird contemplate the acquisition of EV fleets from major companies such as the Chinese auto giant BYD—the Indonesian government’s projections will need more time to become a reality.

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Indonesia to provide more incentives for EV manufacturers

Indonesia is finalizing a new set of incentives in its effort to attract investment from EV companies, a senior minister said, as the country keeps up negotiations with major EV companies like US-based Tesla and China-based BYD. 

The Coordinating Minister of Maritime Affairs and Natural Resources, Mr. Luhut B. Pandjaitan, said the incentives would be benchmarked by those provided by regional rivals Thailand and Vietnam, though he did not give any further specifics. 

“Tomorrow we are going to finalize incentives that we are going to give to any EV investment in Indonesia,” Mr. Pandjaitan said, speaking at a nickel industry conference held by CNBC Indonesia on Tuesday, July 25, 2023. 

Indonesia has been aggressively courting EV makers to invest in the archipelago. Due to its rich nickel reserves – the world’s biggest – and its strategic geographical location on the Strait of Malacca, Indonesia offers significant advantages for resources for EV battery production as well as market access to the rest of the world. 

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