Jakarta. Indonesia announced Monday that it would roll out a tax incentive for hybrid cars in an attempt to reduce the country’s carbon emissions.

The government kicked off the week by announcing a series of upcoming economic policy packages, including incentives for electric vehicles (EVs). Tax incentives for electric-powered cars are already in effect. Senior minister Airlangga Hartarto revealed that the government would also help lower the tax bill for cars that run on both internal combustion engines and electric motors better known as hybrid vehicles. 

“The luxury tax on hybrids will be government-borne. The government will cover 3 percent of the [luxury] tax burden for hybrid vehicles,” Airlangga told the press in Jakarta.

Hybrid cars are currently subject to a luxury tax rate of between 6 and 12 percent. In other words, the luxury tax for hybrid cars will be capped at 9 percent once the freshly announced discount is in force. Fully electric four-wheelers are already enjoying luxury tax incentives.

At present, electric cars that have at least 40 percent of their components produced locally are eligible for a 10-percent value-added tax (VAT) discount. The cars sold in Indonesia that can apply for this tax cut include the Hyundai Ioniq 5 and Wuling Air EV.  

“We plan to continue the [tax incentive] facilities for electric four-wheelers based on the local content. We will keep the government-borne luxury tax for completely built-up, imported electric vehicles. The same goes for the completely knocked down cars,” Airlangga said. 

Completely built-up cars refer to imported units that arrive in Indonesia in one piece. On the other hand, complete knockdowns get delivered in parts and are assembled at a local factory. 

Import tariff exemption for electric cars would also remain in effect, Airlangga told reporters. 

According to the Indonesian Automotive Industry Association (Gaikindo), hybrid cars are more popular compared to their battery counterparts. The wholesale of hybrid cars reached 36,672 units in January-September 2024. This far surpassed the wholesales of battery electric vehicles, which only had 27,548 units sold over the same nine-month period. Plug-in hybrid EV wholesales reached 118 units, data shows.

Hybrid cars emit less emission than their conventional counterparts, although not as clean as their fully electric counterparts. Indonesia has been aiming to reach net zero emissions by 2060 or sooner. President Prabowo Subianto, however, has revised Indonesia’s net-zero emission target to 2050.

Airlangga also announced that the government would proceed with the plan to raise the VAT to 12 percent starting in January. Staple food such as rice and eggs, however, will be VAT-free.