The Indonesian government is preparing to tighten fiscal policy in the electric vehicle (EV) sector starting in 2026, a measure expected to encourage the localisation of EV manufacturing as global automakers seek to avoid higher import duties.

Muhammad Rachmat Kaimuddin, Deputy for Infrastructure and Transportation Coordination at the Coordinating Ministry for Infrastructure and Regional Development, stated that EV producers which fail to establish domestic production facilities will face higher import taxes beginning next year.

"If they do not produce in Indonesia by 2026, import taxes will increase. They have several options, either building their own factories or partnering with local assemblers," Rachmat said on December 19th.

Rachmat indicated that nine global automotive brands have committed to producing electric vehicles in Indonesia, including Geely, BYD, Citroen, VinFast, Great Wall Motor (GWM), Volkswagen, Xpeng, Maxus, and Aion.

These remarks align with comments from Rosan P. Roeslani, Minister of Investment and Downstream Industry and Head of the Investment Coordinating Board (BKPM), who stated that seven EV manufacturers have already established production facilities in the country, namely VinFast, Volkswagen, BYD, Citroen, Aion, Maxus, and Geely.

Total investment from these seven manufacturers has reached approximately IDR 15.4 trillion (US$ 918 million), with a combined production capacity of around 281,000 units per year.

Meanwhile, GWM has been operating an assembly facility in Wanaherang, Bogor, while Xpeng has established an assembly plant in Purwakarta, West Java. BYD is currently constructing its own assembly facility in Indonesia to comply with local production requirements.

With domestic assembly facilities expanding, the nine brands are expected to remain unaffected by higher import duties, provided that vehicles are assembled locally under the completely knocked down (CKD) scheme rather than imported as completely built-up (CBU) units.

"As a result, there is no justification for price increases," Rachmat said.

The Ministry of Industry confirmed that it will not extend incentives for battery electric vehicles (BEVs) imported as CBU units beyond 2025.

Until the end of December 2025, the government will continue to grant import duty exemptions, as well as luxury goods tax (PPnBM) and value-added tax (VAT) incentives, provided that manufacturers commit to domestic production at a 1:1 ratio with imported vehicles.

From January 1st, 2026, to December 31st, 2027, EV producers will be required to manufacture electric vehicles in Indonesia in volumes equivalent to their CBU import quotas, in accordance with local content (TKDN) requirements.

The policy is intended to support import substitution, domestic supply chains, and tax contributions from the EV sector.