Indah Ayu Pujiastuti, Jakarta – The fiscal savings generated by electric vehicle (EV) adoption in Indonesia remain far smaller than the cost of incentives provided to support the sector. However, analysts warned the government against moving too quickly to scale back support this year.
A 2025 market and policy study on electrification by the University of Indonesia Faculty of Economics and Business found that increased adoption of battery electric vehicles (BEVs), hybrid electric vehicles (HEVs), and plug-in hybrid electric vehicles (PHEVs) could reduce demand for subsidized fuel by 18.8%. However, the resulting annual savings are estimated at just Rp 273 billion ($16.3 million).
By contrast, incentives for battery-based electric cars amounted to Rp 6.16 trillion ($367 million) last year, based on compiled government data.
Imported EVs previously enjoyed a 50% exemption on import duties and a 15% reduction in luxury goods sales tax, while locally assembled EVs received an additional 10% value-added tax borne by the government (PPN DTP).
As a result, total tax on imported EVs fell to about 12% from a normal rate of 77%, while VAT on locally produced EVs dropped to just 2%. Both imported and locally assembled EVs were also exempt from vehicle ownership tax and transfer fees, worth around 15%.
Overall, total tax incentives reached about 80% for imported EVs and 90% for locally assembled models.
These incentives for imported EVs expire in 2025, while VAT on locally assembled EVs has returned to the standard 12%, pushing prices of some models up by around Rp 20 million. Under the current framework, remaining incentives are limited to vehicle ownership tax and transfer fee exemptions. However, EV manufacturers that invest at least Rp 5 trillion ($297 million) in local production remain eligible for corporate tax holidays of up to 10 years.
Long-term investment
Despite the limited short-term impact on fuel subsidy spending, some analysts argue that EV incentives should be viewed as a time-bound strategic investment rather than a fiscal burden, with future support prioritizing domestic production.
Automotive analyst Yannes Martinus Pasaribu said EV incentives have yet to deliver meaningful budgetary savings because the number of electric cars remains small – around 104,000 units – compared with roughly 25 million fossil-fuel vehicles currently operating in Indonesia.
However, he noted that EVs are far more energy-efficient, consuming only about 20-30% of the energy per kilometer used by comparable internal combustion vehicles.
This efficiency, Yannes argued, should prompt a gradual but decisive reallocation of state spending away from poorly targeted fuel subsidies toward incentives for locally produced EVs.
"Such a shift would not only reduce oil imports, but also force investors to localize battery technology and core components in Indonesia," he said. "EV incentives are not a burden, but a long-term instrument to safeguard the state budget."
Fiscal risks
Permata Bank chief economist Josua Pardede said the objective of EV incentives extends well beyond fuel subsidy savings, encompassing faster adoption, progress toward low-emission targets, and the development of a domestic EV industry.
"The benefits of EVs are not only measured by fuel savings, but also by reduced emissions and lower energy imports," he said.
Josua warned that the greater fiscal risk lies in fuel subsidies, which are highly sensitive to global oil price swings and rupiah volatility. In periods of global uncertainty, oil price spikes can quickly inflate government spending.
"The longer the transition to electric vehicles is delayed, the longer the state remains burdened by fuel subsidies and energy imports," he said, adding that transport electrification is critical to reducing oil dependence and urban air pollution.
He cautioned, however, that EV adoption depends not only on price incentives but also on charging infrastructure, after-sales services, and access to financing. The government aims to build 7,146 public EV charging stations by 2030, while demand for private charging installations is expected to be significantly higher.
Market pressures
Indonesia's broader automotive market is also under strain. Wholesale vehicle sales in 2025 totaled about 803,687 units, reflecting weakening purchasing power and more cautious consumer behavior.
Automotive observer Bebin Djuana warned that the surge in EV sales in 2025 was driven largely by incentives and relaxed import rules. If incentives are withdrawn, imports curtailed, and domestic production remains insufficient, EV prices could rise sharply and sales could slide again.
"Domestic production volumes are not yet adequate," Bebin said. "If incentives are removed and imports restricted while purchasing power has yet to recover, the market risks weakening once more."
Source: https://jakartaglobe.id/business/scrapping-ev-incentives-may-be-premature-analysts-war