Indonesia aims to boost EV sales with cuts to tax breaks for hybrids

Jakarta

INDONESIA, a top supplier of a key battery metal, will aim to boost sales of electric vehicles with a new regulation that will cut tax breaks for hybrid cars.

Battery-powered electric vehicles (EVs) will retain their 0 per cent luxury tax rate, while plug-in hybrid vehicles will see their tariff increase to 5 per cent from 0 per cent, according to a draft regulation issued by the finance ministry on Monday. Full and mild hybrid types will be taxed at a rate of 6-12 per cent, compared with a previous range of 2-12 per cent.

The new rates will apply only to locally produced vehicles.

This is the latest in a series of initiatives that Indonesia has unveiled to meet its ambition to become a global EV battery hub. The country wants to expand its role as a major source of nickel - used in the batteries - to also producing other components as demand for greener transport skyrockets across markets such as the US, China, Japan and Europe.

Higher rates will kick in in two years after the battery-powered EV sector realises investments of five trillion rupiah (S$470 million), or when it starts commercial production with an investment of the same amount. After this, plug-in hybrids will be taxed at a rate of 8 per cent, while other hybrids will see a tariff of 10-14 per cent, the draft rules showed.

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While South-east Asia's largest economy has caught the attention of the world's major battery makers, the Indonesian government is also keen to prop up the usage of EVs in the fossil-fuel dependent country, especially where traditional and hybrid cars remain cheaper. Only 120 EVs were sold there in 2020, about a tenth of the sales of hybrids, industry data showed.

Indonesia, among the countries most vulnerable to climate change, has shown renewed focus on reducing its carbon emissions, with the government weighing incentives for clean-energy use and expanding its renewables sector.

The transport sector accounts for nearly 30 per cent of the country's total emissions, with land transport comprising the bulk of it. Indonesia has committed to reduce its emissions by at least 29 per cent by 2030 under the Paris Agreement. BLOOMBERG