JAKARTA – In a bid to transform itself into a global leader in electric vehicle (EV) production and sales, Indonesia’s Ministry of Finance has rolled out a series of new tax incentives. These incentives are designed to spur domestic EV production and sales, leveraging the country’s vast natural resources and strategic location.
Key Tax Incentives to Boost EV Production
The new incentives include the removal of the luxury tax on electric vehicles for 2024, a waiver of import taxes until 2025, and a significant reduction in value-added tax (VAT) on EV sales. These measures are expected to catalyze the growth of the EV market in Indonesia, making EVs more accessible and affordable for consumers.
Leveraging Nickel Reserves
Indonesia boasts the world’s largest deposits of nickel, a critical component in the production of EV batteries. The government aims to capitalize on this natural advantage to develop a fully integrated domestic EV supply chain. With ambitious targets, Indonesia plans to become the third-largest producer of electric batteries by 2027, achieving an annual production capacity of 140GWh by 2030.
Ambitious EV Production Goals
In addition to battery production, Indonesia is targeting the production of 600,000 electric vehicles by 2030. This target underscores the country’s commitment to becoming a major player in the global EV market.
VAT Incentives for Local Content Production
To encourage the use of locally produced components, the government has introduced VAT incentives for EVs with substantial local content. Consumers who purchase electric cars with more than 40 percent locally produced components will benefit from a VAT reduction from 11 percent to just 1 percent. This incentive is applicable until December 2024, with the local content requirement set to increase to 60 percent by 2027.
Electric buses that incorporate between 20 and 40 percent local components will receive a five percent VAT subsidy, reducing the VAT rate to six percent for consumers.
Luxury Sales Tax Incentives
Companies that import completely-built-up (CBU) four-wheeled EVs are eligible for luxury sales tax exemptions and import duty exemptions. Additionally, companies delivering completely-knocked-down (CKD) four-wheeled EVs built with 20 to 40 percent local components will also benefit from luxury sales tax exemptions. However, businesses must adhere to specific investment criteria to qualify for these incentives.
Investment Criteria for Tax Incentives
To be eligible for the new tax incentives, businesses must:
- Build an EV manufacturing facility in Indonesia.
- Transition production from internal combustion engine vehicles to EVs, either partially or wholly.
- Invest in existing EV manufacturing facilities to increase production and develop new products.
These incentives are available until December 2024, providing a limited window for companies to take advantage of the benefits.
Indonesia’s Electric Battery Industrial Strategy
Indonesia’s strategic vision extends beyond EV production to encompass the entire EV supply chain. Foreign investors are encouraged to explore opportunities in nickel smelting, EV battery manufacturing, and vehicle production. The government aims to achieve 2.5 million EV users by 2025, reflecting its ambitious plans for the sector.
Nickel Reserves and Production
Indonesia holds an estimated 21 million tons of nickel reserves, accounting for approximately 22 percent of global reserves. The country is also the world’s top producer of nickel, with production reaching 1 million tons in 2021. While 70 percent of nickel usage currently goes towards the stainless-steel sector, there is a growing demand for nickel in EV battery production. By 2030, demand from the EV battery sector is expected to account for one-third of total nickel demand.
Developing Lithium and Anode Material Facilities
In addition to nickel, Indonesia is developing lithium refineries and anode material production facilities to complement its nickel-based battery industry. Historically, Indonesian nickel smelters have produced Class 2 nickel (ferronickel/pig iron), while battery cathode production requires Class 1 nickel, which contains at least 99.8 percent nickel.
Despite the lack of rich lithium deposits in Indonesia, the country is set to import 60,000 tons of lithium from Australia starting in 2024. Australia currently supplies approximately half of the world’s lithium, with most exports heading to China. By importing lithium, Indonesia aims to bolster its battery production capabilities and further integrate itself into the global EV supply chain.
Investment from Global EV Makers
Global EV manufacturers, including Tesla from the US and BYD from China, are reportedly finalizing deals to invest in Indonesia. These investments are expected to significantly boost the country’s EV production capacity and help achieve its ambitious targets.
