automotive

Challenges In The Automotive Industry 2025: EV Incentives Amidst New Tax Policies

The government has officially introduced fiscal incentives amid the implementation of new tax policies for the automotive sector in 2025. Electric and hybrid vehicles will benefit from a Value Added Tax (VAT) discount under two schemes. However, the increase of VAT to 12 percent and the introduction of a vehicle tax option present challenges for an industry that is currently experiencing a slowdown. Finance Minister Sri Mulyani announced a VAT discount for electric and hybrid vehicles, as well as for homes priced up to IDR 5 billion. 

"The VAT discount scheme, fully covered by the government, will be in effect until June, with a 100 percent discount, and for the second semester, the discount will decrease to 50 percent," stated Sri Mulyani during a press conference at the Ministry of Finance in Central Jakarta on Tuesday, December 31, 2024. 

President Prabowo Subianto also indicated that the VAT rate will rise to 12 percent, effective January 1, 2025. "This increase is mandated by Law No. 7 of 2021 concerning the Harmonization of Tax Regulations," Prabowo explained. "The increment will occur gradually, starting from 10 percent to 11 percent in April 2022, and now to 12 percent in January 2025. The aim is to mitigate significant impacts on public purchasing power, inflation, and economic growth," he added. In addition to the VAT increase, the government will implement a vehicle tax option starting January 5, 2025. This tax option is governed by Law No. 1 of 2022 regarding Financial Relations between the Central Government and Regional Governments. 

This option will be applied up to 66 percent of the Motor Vehicle Tax (PKB) and the Transfer of Motor Vehicle Ownership Fee (BBNKB) received by provincial governments. The combination of tax policies for 2025 is projected to pose 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 recorded 920,518 units. 

Tag: Automotive Industry 2025 Value Added Tax