Automotive Industry Challenges In 2025: EV Incentives Amid New Tax Policies

The government has officially introduced fiscal incentives alongside new tax policies for the automotive sector starting in 2025. Electric and hybrid vehicles will receive incentives in the form of Value Added Tax (VAT) discounts under two schemes. However, the VAT increase to 12 percent and the implementation of vehicle tax options pose challenges for the slowing industry. Finance Minister Sri Mulyani announced VAT discounts for electric and hybrid vehicles, as well as homes priced up to Rp 5 billion. "The government will cover 100 percent of the VAT discount until June, and in the second half of the year, the discount will drop to 50 percent," said Sri Mulyani at a press conference in Jakarta on Tuesday, December 31, 2024.

President Prabowo Subianto also stated that the VAT rate will rise to 12 percent, effective January 1, 2025. "This increase is mandated by Law No. 7 of 2021 on Tax Regulation Harmonization," Prabowo explained. "The increase will be gradual, from 10 percent to 11 percent in April 2022, and now to 12 percent in January 2025. The aim is to minimize significant impacts on public purchasing power, inflation, and economic growth," he added. In addition to the VAT increase, the government will implement motor vehicle tax options starting January 5, 2025. This tax option is regulated under Law No. 1 of 2022 regarding Financial Relations between the Central and Regional Governments.

This option will be applied up to 66 percent of the Motor Vehicle Tax (PKB) and the Motor Vehicle Transfer Fee (BBNKB) received by provincial governments. The combination of tax policies for 2025 is expected to create significant challenges for the national automotive industry. According to data from the Indonesian Automotive Industry Association (Gaikindo), national car sales from January to November 2024 reached 784,788 units, a decrease of 135,730 units compared to the same period in 2023, which had 920,518 units.

Sales dropped by 14.745 percent due to several factors, including a decrease in purchasing power among lower-middle-class consumers. This reflects a weakening automotive market that was evident even before the new tax policy was implemented. The Indonesian Automotive Industry Association (Gaikindo) believes that the tax options will create many challenges for new car sales. "This policy should be approached wisely by local governments, as they have a better understanding and data to implement tax options," said Gaikindo's Secretary General, Kukuh Kumara, in a separate statement. Meanwhile, the Chairman of the Commercial Sector of the Indonesian Motorcycle Industry Association (AISI), Sigit Kumala, thinks this tax policy could negatively impact national motorcycle sales.

Tag: Automotive Industry Prabowo Subianto Value Added Tax