Indonesia relaxes tax rules on EV imports to attract investment

A worker cleans an electric-powered car Neta V, that is displayed during the Gaikindo Indonesia International Auto Show in Tangerang, near Jakarta, Indonesia, Aug 10, 2023. REUTERS/Willy Kurniawan/file photo

JAKARTA  – 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 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.

Tax breaks on CBUs

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.

READ: Indonesia to provide incentives to boost EV sales, attract investment

However, the number of vehicles companies can import would depend on the investment size and development progress of the plant, and must be approved by the investment ministry.

Speaking at a webinar on Indonesia’s economic prospects on Wednesday, Rachmat Kaimuddin, a deputy at the Coordinating Ministry of Investment and Maritime Affairs, said the new decree would help automakers build their market in the country through EV imports.

“We try to be progressive, because once we have created an EV industry in Indonesia, the battery (industry) will also come, and we already have the (raw) material and can create the supply chain,” he said.

READ: Like Musk, nickel-rich Indonesia has high electric vehicle ambitions

The new regulations also delayed a deadline requiring companies to produce at least 40 percent of the content of EVs in Indonesia until 2026 from 2023.

Also the decree delays an increase in the local content threshold to 60 percent to 2027 from initial target of 2024.

Indonesia’s government has set an ambitious target of producing some 600,000 EVs by 2030. That would be more than 100 times the number sold in Indonesia in the first half of 2023.

Some companies including Hyundai have invested in Indonesia followed by investment commitments by China’s Neta EV brand and Mitsubishi Motors. Indonesia is also wooing Tesla and China’s BYD.