The government's 3% luxury tax incentive on the purchase of electric vehicles (EVs) aims to encourage the wider adoption of environmentally friendly vehicles, as stated by Coordinating Minister for Economic Affairs, Airlangga Hartarto.

The incentive, which will take effect from January 1st, 2025, is part of the government's efforts to achieve net-zero emissions.

Hartarto emphasised that a considerable number of both battery electric vehicles (BEVs) and hybrid electric vehicles (HEVs) have been sold to date. However, EVs currently represent only around 10% of the market, and the goal is to increase this share.

These comments were made after an event at Halim Perdanakusuma Air Force Base in Jakarta on 17th December, 2024, where Hartarto saw off President Prabowo Subianto, who was departing for a working visit to Cairo, Egypt.

Additionally, Hartarto stated that the EV incentive is expected to support the growth of related industries, such as the electric vehicle battery sector. For example, a company in Morowali, Central Sulawesi, is already producing electric vehicle batteries.

If the incentive successfully boosts EV adoption, it would have a positive effect on the domestic industry, Hartarto explained.

"If this is achieved, we can meet the 60% local content requirement (TKDN)," he said.

"This target has been set by the government to increase TKDN and stimulate interest in electric vehicles," he further added.

On December 12th, 2024, Industry Minister Agus Gumiwang Kartasasmita announced that the government would apply a 3% reduction in the luxury tax for hybrid vehicles starting January 1st, 2025.

The total cost of providing these incentives is estimated at IDR 840 billion (US$ 52 million).

Kartasasmita also referred to Industry Minister's Regulation Number 36 of 2021 concerning Low Carbon Emission Four-Wheeled Motor Vehicles, which sets out the local content (TKDN) requirements that hybrid car manufacturers must meet in order to participate in the incentive programme.