Is the Tax on Electric Cars Lower Than That on Fuel Vehicles?

Advancements in technology and increased awareness of environmental preservation have prompted many countries, including Indonesia, to promote the use of electric cars as an alternative to fuel-powered vehicles. One topic that often comes up in discussions is the comparison between the taxes imposed on electric cars and those on fuel vehicles.

Many people are curious: is the tax on electric cars actually cheaper than that on fuel vehicles? To answer this question, let’s take a closer look at the electric vehicle tax policies in Indonesia.

Tax Structure for Electric Cars

The Indonesian government offers various fiscal incentives to encourage the adoption of electric vehicles. One such incentive is the reduction of tax burdens. Generally, electric cars are subject to lower taxes compared to fuel vehicles. Here’s how the taxation breaks down:

Value Added Tax (VAT)

When asked if electric cars are taxed, the answer is yes. Like fuel vehicles, electric cars are subject to a VAT of 11 percent. However, the government often provides VAT exemptions for certain electric vehicles, which lightens the tax burden on consumers.

Luxury Goods Sales Tax (LGSST)

The LGSST rate for electric cars is typically lower than that for fuel vehicles, making them more affordable for the public. This rate generally ranges from 0% to 15%, depending on the type of vehicle technology, such as pure electric, plug-in hybrid, or conventional hybrid.

Motor Vehicle Tax (MVT) and Motor Vehicle Name Transfer Fee (MVNTF)

Some regions have implemented exemptions or reductions on MVT and MVNTF for electric vehicles, resulting in more competitive pricing compared to fuel vehicles, which usually incur higher taxes—especially in the luxury vehicle category with larger engine capacities.

Comparison of Taxes Between Electric Cars and Fuel Vehicles

While the initial price of electric cars may be higher than that of fuel vehicles, significant tax incentives can lower the overall cost of ownership. Check out the comparison table below for a clearer picture.

Supportive Policies for Electric Vehicle Adoption

The Indonesian government has introduced several policies to support the growth of electric vehicles, including fiscal incentives that impact taxes. Here are some initiatives aimed at encouraging consumers to switch to electric cars:

• Government Regulation No. 73 of 2019: This regulation establishes the primary framework for tax incentives for electric cars, allowing reductions or exemptions on LGSST based on the type of technology used, such as pure electric and hybrid vehicles.
• Government Regulation No. 74 of 2021: Building on previous policies, this regulation emphasizes tax incentives for purchasing electric cars and offers discounts on LGSST for electric vehicles of up to 15%.
• Local Government Revenue Law (UU HKPD): This law provides exemptions on MVT and MVNTF for electric cars, scheduled to take full effect in 2025.

These policies highlight the government’s commitment to accelerating the transition to electric vehicles, which can help reduce dependence on fossil fuels and lower carbon emissions. Additionally, the shift to electric cars can have long-term economic and environmental benefits. 

From an economic standpoint, tax incentives help lower ownership costs. The operational costs of electric cars, including maintenance and charging, are generally less than those of fuel vehicles. Environmentally, electric cars produce no exhaust emissions. 

However, the environmental benefits depend on the energy sources used to generate electricity. In Indonesia, there are challenges in ensuring that the energy used for charging electric vehicles comes from clean sources, like solar and wind, to maximize the positive environmental impact.

Future Challenges for Electric Vehicle Adoption

Despite the government’s various incentives, several challenges remain in developing the electric vehicle industry in Indonesia:

• The need for adequate charging infrastructure to support electric vehicle usage.
• While tax incentives help reduce costs, electric cars are still priced higher than fuel vehicles.
• The limited variety of electric vehicle models available in the market reduces consumer interest.
• Regulations regarding tax incentives need to be periodically updated to accommodate technological advancements and promote broader adoption.
• Challenges exist in developing battery technology to accelerate the transition to electric vehicles.

In summary, the tax on electric cars is generally lower than that on fuel vehicles, thanks to various incentives such as LGSST reductions, exemptions from MVT and MVNTF, and supportive charging infrastructure that make electric cars increasingly affordable for consumers. However, to fully realize the economic and environmental benefits of transitioning from conventional vehicles to electric cars, more significant efforts are needed, such as developing infrastructure and updating regulations dynamically to encourage the public to adopt eco-friendly electric vehicles.