Jakarta. The Finance Ministry is reviewing a plan to offer tax incentives aimed at encouraging electric vehicle (EV) manufacturers to adopt nickel-based batteries over lithium alternatives, to accelerate the country’s downstream nickel industry and solidify its role in the global EV supply chain.

The proposal is currently being assessed by the Fiscal Policy Agency (BKF) through the Directorate General of Economic and Fiscal Strategy (DJSEF). Riznaldi Akbar, a senior policy analyst at the directorate, said the incentives could include government-borne value-added tax (VAT), import duty exemptions, and luxury goods sales tax (PPnBM) relief.

“It’s still under review at BKF,” Riznaldi said on Thursday. “The package would likely combine various tax incentives--VAT subsidies, import duty waivers, and PPnBM exemptions-- not only for EV purchases but also for battery components.”

The distinction between battery chemistries is crucial for EV manufacturers. Nickel-based batteries, particularly those using nickel-manganese-cobalt (NMC) or nickel-cobalt-aluminum (NCA) chemistries, offer higher energy density, allowing for longer driving ranges and better performance. These batteries are commonly used in mid- to high-end EVs such as Tesla's Model 3 Long Range or Hyundai's Ioniq 5.

In contrast, lithium iron phosphate (LFP) batteries are generally cheaper, safer, and more stable, but come with lower energy density and reduced range. LFP batteries are widely used in entry-level EVs, especially in the Chinese domestic market.

By incentivizing the use of nickel-based batteries, the Indonesian government aims to leverage its natural advantage: the country holds 52 percent of the world’s total nickel reserves, making it a strategic supplier for the EV industry. Indonesia banned raw nickel ore exports in 2020 to boost domestic refining and battery production capacity. As a result, nickel-based product exports surged to $33.9 billion in 2024, a dramatic increase from $3.3 billion in 2017.

Global demand for EVs is surging. According to BloombergNEF, passenger EV sales are projected to reach 39 million units by 2030, up from 17.6 million in 2024. With major automakers shifting toward more sustainable battery technologies, Indonesia sees an opportunity to leverage its nickel resources to attract investment and foster industrial growth.

In addition to EV battery incentives, the DJSEF has identified five other key programs as part of President Prabowo’s priority agenda: data center development, the expansion of the 40 percent biodiesel (B40) program, subsidized housing finance (FLPP), and the construction of a giant sea wall to protect Jakarta from coastal flooding.

“These are the President’s priority programs,” Riznaldi concluded.

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