The Institute for Essential Services Reform (IESR) has warned that the Indonesian government’s plan to end electric vehicle incentives in 2026 could cause substantial economic losses and slow the growth of the domestic EV industry (21/12).

Coordinating Minister for Economic Affairs Airlangga Hartarto confirmed that incentives for electric cars will not be extended beyond 2026. The budget for these subsidies will instead be redirected to support the national car program. Key incentives ending include import duty exemptions for completely built-up (CBU) electric vehicles, reduced from 50% to 0%, and a 10% value-added tax (VAT) incentive.

Economic Impacts of Ending EV Incentives

IESR estimated that halting the incentives could result in a loss of potential economic benefits from the integrated battery and electric vehicle industry, reaching up to Rp544 trillion per year until 2060.

The organization noted that ending the incentives would directly increase EV prices due to the removal of the 10% VAT discount and import duty exemptions. This change could limit EV sales, hinder the growth of supporting industries such as batteries and components, and slow the adoption of electric vehicles, which play a key role in reducing fuel demand and oil imports.

EV Adoption and the Role of Incentives

According to IESR Chief Executive Officer Fabby Tumiwa, incentives have played a major role in encouraging EV adoption.

“Electrification of motorized vehicles is the backbone of emission reductions in the transport sector. Its contribution can reach 45%-50% of the total reduction in transport sector emissions,” Fabby said. “The benefits would be even greater if combined with a comprehensive Avoid–Shift–Improve strategy, achieving long-term emission reductions of up to 76% and around 18% by 2030.”

By October 2025, national EV sales reached a record 68,827 units, dominated by models receiving incentives. In contrast, the removal of electric motorcycle incentives in 2025 caused sales to drop by 80% in the first quarter compared to the same period last year.

Financing and Policy Opportunities

Faris Adnan Padhilah, IESR’s Coordinator for Energy Demand Management Research, noted that interest from domestic banks in financing the EV industry and EV ownership loans continues to grow.

“This opportunity should be used by the government to strengthen financing for sustainable mobility,” he said. He also emphasized that supply-side policies, such as EV mandates, economic instruments including fuel carbon taxes, and non-fiscal incentives like exemption from odd-even traffic rules, would increase the attractiveness of electric vehicles and boost consumer interest.

Government Considerations for Investment

IESR encourages the government to reconsider ending EV incentives to maintain a positive investment climate. Several manufacturers are still building factories, and continued support is needed to attract global EV brands and prevent them from moving to competing Southeast Asian countries.

PHOTO: FREEPIK

This article was created with AI assistance.