Incentive Policy For The National Automotive Industry Potentially Makes Local Production Of HEV Cars Increasing

The Ministry of Industry (Kemenperin) is designing an incentive proposal for the automotive industry which has a large multiplier effect on the economy. At this stage, the government is advised to continue and strengthen the provision of special incentives for locally produced hybrid cars with a high level of domestic components (TKDN), in order to support the development of the environmentally friendly automotive industry in Indonesia.

Currently, hybrid car aka hybrid electric vehicle (HEV) gets a 3 percent discount on luxury goods sales tax (PPnBM) incentive which will expire by the end of the year. This incentive is considered relatively much smaller than the battery electric vehicle (BEV) which gets 10 percent government-borne value added tax (PPN DTP) incentive and 0 percent PPnBM for local production.

BEV is also not subject to local taxes, namely motor vehicle tax (PKB) and transfer duties for motorized vehicles (BBNKB). As a result, local homemade BEVs that meet TKDN requirements only pay 2 percent tax. Meanwhile, HEV still pays VAT, BBN, and PKB normal tariffs and is subject to tax optimization.

In fact, the import BEV in the market test scheme is given an incentive to exempt import duties (BM) by 50 percent, so that it is enough to be taxed 12 percent of it should be 77 percent. This incentive will expire by the end of 2025.

This very unequal tax structure needs to be evaluated in order to revive the automotive industry, which scored a domestic sales decline of 10.6 percent as of October 2025. The expansion of incentives to internal combustion engine cars (ICE) is also worth considering, as it still dominates domestic car sales.

The incentive policy for BEV has also received a lot of attention. Observers assess that the government needs to balance support for hybrid vehicles that have a significant contribution to emission reduction and energy efficiency.

According to Riyanto, a senior researcher from the Institute for Economic and Community Research, Faculty of Economics and Business, University of Indonesia (LPEM FEB UI), the policy for hybrid vehicles is still not fair enough compared to pure electric vehicles. Currently, the incentive value is only 3 percent.

This segment needs to be given a fairer policy with a reductive basis for emissions and TKDN. The incentives for HEV are currently not fair," said Riyanto, in his statement, quoted Monday, November 24.

The push for hybrid vehicle incentives is also relevant because more and more manufacturers have produced domestic (local) hybrid models. Honda is now assembling HR-V e: HEV at its factory in Karawang, Wuling Indonesia produces Almaz Hybrid in Bekasi.

The latest New Toyota Veloz HEV is produced locally at the Karawang Factory with more than 80% TKDN. The presence of the New Toyota Veloz HEV adds to the ranks of HeV Toyota vehicles produced locally in Indonesia. Previously, Toyota Indonesia had produced the Toyota Kijang Innova Zenix HEV in 2022 and the Toyota Yaris Cross HEV in 2023 at the Karawang factory in West Java.

The presence of these local production hybrid models, he said, has absorbed thousands of workers, ranging from production lines, component supply chains, to the logistics and sales sector. This ever-increasing hybrid production activity directly contributes to the national economic turnover, especially because the supply chain is longer than imported vehicles.

This is a strong reason for the government to provide more balanced incentives, so that the hybrid industry, which is already rooted in the country, can continue to grow and have a wider economic impact.

He expects the prospects for hybrid vehicles by 2026 to be better than this year, especially after incentives for BEVs with complete import status or CBU (completely built-up) ends. This condition is considered to encourage increased demand for hybrid vehicles.

What is clear is that next year the HEV will be better than this year, because this year the CBU BEV, whose sales will erode the CKD BEV market and also HEV. My estimate is that HEV can have 5 percent market share. Some players who previously only sold BEV will offer HEV, so there will be a lot of model variations from small to large ones," said Riyanto.

Furthermore, Riyanto assessed that pure and hybrid electric vehicles will have different market segmentations. The regional market tends to receive more hybrid vehicles, the factor is because not all regions have readiness to facilitate the BEV, especially Public Electric Vehicle Charging Stations (SPKLU) as an important ecosystem for the operation of the BEV.

"Yes, if the BEV must be a consumer in the city because SPKLU is needed. For hybrids, more socialization is needed, especially outside Java, many do not know the hybrid," he said.

He added, with the end of incentives for CBU BEV, the production hybrid vehicle market and local production or assembled BEV are predicted to revive.

The CBU BEV incentives will end. As a result, the CKD BEV and HEV will increase their market. Of course, the HEV industry will be excited again," said Riyanto.

In fact, according to him, the government deserves to extend and strengthen incentive policies for hybrid producers, especially if it is able to increase local content in the production process.

"Incentives for hybrid vehicles deserve to be continued and given an addition with the addition of local component production," he said.

In line with that, Automotive Observer Bebin Djuana also assessed that hybrid vehicles should receive greater attention in terms of fiscal policy.

If our focus is on emissions, of course, hybrid needs to be taken into account, not just BEVs. BEVs do not contribute emissions, while hybrids reduce emissions, at the same time also reduce fuel consumption. The tax should be reduced. If this happens, the hybrid market will certainly increase," said Bebin.

He assessed that the potential growth of hybrid vehicles will depend heavily on the amount of tax incentives provided and the speed of producers in presenting new models in the market.

"The amount of increase depends on how much tax cuts and factory speeds submit the latest models because our consumers always want the latest models in the shortest possible time," said Bebin.

Bebin also emphasized that the market map for electric and hybrid vehicles in the coming year will be determined by the readiness of the domestic industry in producing vehicles efficiently and competitively.

"(Next year's BEV and Hybrid Markets) Depending on the readiness of domestic BEV production, can production efficiently with equal quality," he said.

Previously, the Minister of Industry (Menperin) Agus Gumiwang Kartasasmita revealed that the automotive sector has a high multiplier effect, both future and backward relations (backward and forward linkage) of sub-sectors to other sectors in the national economy. The automotive sector also absorbs a lot of labor. Therefore, the Ministry of Industry will propose that this sector will get incentives, the goal is that the industry can move more.

"The Ministry of Industry is now in the process of formulating proposals that will be submitted by the government, in this case the Coordinating Minister for the Economy. We are working on incentive policies and stimulus for the automotive sector which we will propose for the 2026 fiscal policy," said Minister of Industry Agus in Jakarta, recently.

The main focus of this incentive proposal is the protection of workers from layoffs and the creation of new jobs in the automotive sector, as well as maintaining the sustainability of investment in the automotive industry in Indonesia.

"We hope that the automotive sector will receive special attention, so that there is protection for existing workers and create new jobs. At least, through the 2026 fiscal policy, the automotive sector can grow much faster, contribute more to manufacturing growth and national economic growth," said Manperin.