Jakarta. The Indonesian government will end tax incentives for imported battery electric vehicles (BEVs) in completely built-up (CBU) form by the end of 2025. From 2026 onward, global automakers will need to assemble locally and meet local content targets if they want to benefit from Indonesia’s EV boom.

The incentive scheme, introduced in February 2025 under Investment Minister Regulation No. 6/2023 and No. 1/2024, allowed automakers to import BEVs at a fraction of the normal tax burden. Instead of paying up to 77 percent in combined import duty and luxury goods tax, companies enjoyed a steep discount, just 12 percent in total taxes. The policy was designed as a “market test” to boost EV adoption while requiring participating companies to commit to local production.

The scheme is set to expire on Dec.31, 2025, with no sign of extension. “As it stands, the import incentives will end this year, in line with existing regulations,” said Mahardi Tunggul Wicaksono, Director of Maritime, Transportation Equipment, and Defense Industries at the Industry Ministry, during a public forum in Jakarta on Aug. 25.

Incentives Tied to Local Investment

To qualify for the import incentive, automakers were required to commit to future production in Indonesia under a one-to-one investment scheme backed by a bank guarantee. Companies had until 2027 to fulfill their production pledges, after which the government could claim their guarantees. By 2026, electric vehicle manufacturers must achieve a minimum local content requirement of 40 percent, rising to 60 percent in 2027–2028 and 80 percent by 2030.

Participants in the CBU import program include global names such as BYD, VinFast, Geely, Volkswagen, Xpeng, and Ora. Some companies, including BYD Auto Indonesia and VinFast Automobile Indonesia, have already announced new factory projects, while others are working with local assemblers to meet the requirements.

Indonesia has seen a rapid increase in electric vehicle adoption, with total EV numbers reaching 207,000 units in 2024, a 78 percent jump from the previous year. Market share for BEVs climbed to nearly 10 percent by mid-2025, compared to less than 0.1 percent in 2021.

Government officials view this as evidence that incentives are working to shift consumer preference away from internal combustion engine (ICE) vehicles, whose market share has dropped from 99.6 percent in 2021 to 82.2 percent in 2025. “This is a strong indicator that Indonesia’s transition toward low-emission transportation is on the right track,” Tunggul said.

However, the policy has also drawn criticism. The Association of Indonesian Automotive Manufacturers (Gaikindo) reported that domestic car sales have fallen sharply, while industry utilization dropped from 73 percent to just 55 percent this year. Component suppliers have been particularly hard-hit, with some resorting to layoffs.

“Imported BEVs have disrupted balance in the market,” said Gaikindo Secretary-General Kukuh Kumara. “Factories with high local content are being sidelined, while importers enjoy generous incentives. We need a policy that supports all segments --ICE, hybrid, and EV-- so the entire industry grows together.”

Limited Economic Value

Academics also argue that incentives for imported BEVs provide little added value to the Indonesian economy, since the benefits accrue mostly to trade rather than local manufacturing. “The multiplier effect is minimal compared to local production,” said Riyanto, a researcher at the Institute for Economic and Social Research, University of Indonesia (LPEM UI).

Imported BEVs currently dominate Indonesia’s EV market, making up 64 percent of sales as of May 2025. Riyanto warned that extending the incentive would undermine fairness for companies that have already invested in domestic production. “If this continues, Indonesia risks becoming merely a market for foreign EVs rather than a production hub,” he said.

Despite the challenges, Indonesia remains committed to building itself as a key player in the global EV supply chain. Home to the world’s largest nickel reserves, the country has ambitious plans to develop battery production and position itself as a regional hub for electric vehicle manufacturing.

Industry stakeholders, however, stress the need for more balanced incentives. “The government should adopt a fiscal policy that is consistent, fair, and proportionate based on emission reductions and local content,” Riyanto said.

“The incentives for imported BEVs should not be extended, so that Indonesia does not become merely a market, but also a production hub for BEVs,” he concluded.