Jakarta. Indonesia’s decision to end electric vehicle (EV) incentives should be read as a pivot point rather than a policy setback, shifting the focus from fiscal subsidies to more durable structural regulations, an energy and industrial policy expert said.

Agus Purwadi, an energy and industrial policy observer at Bandung Technology Instsitute (ITB), said EV incentives were never meant to be permanent. Instead, they were designed as an acceleration tool to jump-start the market and attract early investment.

The policy shift comes as the government prepares to phase out major fiscal incentives for electric vehicles, most notably the value-added tax incentive borne by the government (PPN DTP), which lowered the VAT burden for buyers of domestically assembled EVs meeting local content requirements. The incentive is set to expire in December 2025, marking a transition toward non-fiscal measures such as production mandates and structural market regulation.

“EV incentives should not be positioned as a long-term policy,” Agus said in Jakarta on Monday. He warned that prolonged reliance on subsidies risks policy distortions if it is not accompanied by stronger market structures and supporting regulations.

With fiscal incentives ending, Agus said the government must ensure the energy transition continues through non-fiscal policy instruments that are more systemic and resilient to pressure on the state budget. He estimated that Indonesia’s EV ecosystem is about 60% structurally ready, reflected in the inflow of manufacturing investment, relatively clear baseline regulations, and the emergence of early market segments. “But the remaining 40% is still in the scaling-up phase, especially in supply chains, financing, and charging infrastructure,” he said.

Rather than extending broad-based subsidies, Agus proposed a shift toward supply-side mandates, particularly by strengthening local production and applying progressive domestic content requirements (TKDN). He argued that this approach would better build structural competitiveness while protecting long-term investments already in place.

“The TKDN roadmap is basically on the right track. The challenge is ensuring a smooth transition from demand subsidies to production mandates, not a broken one,” he said.

Agus also highlighted the need for emissions-based vehicle tax reform as a key post-incentive instrument. Gradually designed environmental taxes could provide long-term price signals, encouraging a shift away from fossil-fuel vehicles toward low-emission alternatives without relying directly on state spending.

In addition, vehicle age restrictions could be a realistic option to accelerate fleet renewal and curb fuel consumption. Agus noted that similar policies in several Asian countries have proven effective in cutting emissions and speeding up the adoption of cleaner vehicle technologies.

On fuel subsidies, Agus stressed that reform remains a critical prerequisite. While the government plans to improve subsidy targeting between 2026 and 2028, he said the effort would fall short without faster EV adoption.

“Without EVs, subsidized fuel consumption will keep rising. Fuel subsidy reform and EV policy should move in parallel, not be set against each other,” he said.

Agus also called for sustainable and scalable non-fiscal incentives, including streamlined licensing, regulatory certainty for charging infrastructure, and harmonized rules for batteries and supply chains. Such instruments, he said, often have a greater long-term impact than short-term tax cuts.

To maintain momentum in the energy transition, Agus suggested the government continue targeted support for the mass market even after the value-added tax incentive borne by the government (PPN DTP) ends. This could include financing subsidies, green credit schemes, and faster deployment of public charging stations in high-adoption areas.

“Incentives may end, but policy must not stop. The focus should shift from ‘how big the subsidy is’ to ‘how strong the market structure is,’” he said, adding that the success of the energy transition should be measured by the ability of the EV ecosystem to stand on its own.

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