Government to Offer Incentives to Low-Cost Emission Vehicle Manufacturers

The government is preparing incentives for local and foreign manufacturers to develop low-cost emission vehicles, or LCEVs, in a bid to push Indonesia's competitiveness on the international level and minimize the country's dependency on fossil fuels. (Investor Daily Photo/Emral)

By : Sarah Yuniarni | on 7:52 PM November 14, 2017
Category : Business, Automotive

Jakarta. The government is preparing incentives for local and foreign manufacturers to develop low-cost emission vehicles, or LCEVs, in a bid to push Indonesia's competitiveness on the international level and minimize the country's dependency on fossil fuels.

"We only need to synchronize the incentive draft with the Ministry of Finance and hopefully can be completed by the end of this year," Industry Minister Airlangga Hartarto said in a statement on Monday (13/11).

Airlangga said that the incentive will be gradually adjusted to the manufacturer's commitment to developing the LCEV units.

For example, incentives can be given to manufacturers to develop research and development centers for electrical engine components, batteries and power control units in Indonesia, as well as to use local components for the LCEV units.

Airlangga also said that his ministry encourages domestic automotive manufacturers that actively conduct research and development to find alternative renewable energy sources for vehicles by using palm oil or seaweed commodities.

Aside from boosting development and competitiveness for local manufacturers, the incentives are also expected to minimize the price of LCEVs on the market.

Currently, the government imposes about a 75 percent sales tax on LCEVs per unit that use dual petrol gas engines, biofuel engines and hybrid engines, with fuel consumption around 20 km per liter to 28 km per liter. Such units are included in the sales tax on luxury goods (PPnBM).

Meanwhile, the government imposed a 40 percent sales tax on SUVs.

The government imposes higher taxes on LCEV units because they have two power sources - a conventional diesel engine and an electric motor.

Maximize the Country's Potential

Imposing incentives on automotive manufacturers to develop LCEVs is in line with the Industry Ministry's roadmap to accelerate the country's automotive industry. It is also part of government's effort to diversify its energy supply, including by encouraging the development of biofuels.

The renewable energy can also directly generate inclusive economic growth, especially in resource-rich areas, Airlangga said, adding that the government targets 400,000 units of LCEV at least to be available in Indonesian by 2025.

I Gusti Putu Suryawirawan, the director general of the metal industry at the Industry Ministry, said that Indonesia produced 1.1 million units of vehicles last year.

With a national production capacity of 2.2 million units of cars per year, domestic automotive manufacturers need to maximize their potential to have higher competitiveness.

LCEV development can boost the country's production capacity and may cater to growing export demand in the near future.

Electric Motorcycles

Indonesian Motorcycle Industry Association (AISI) chairman Johannes Loman said that motorcycle industry players are ready to support the government's effort to develop electric motorcycles in Indonesia.

Currently, AISI members are creating a suitable model of electric motorcycles that may able to meet the community's demands and needs, such as being affordable, having a longer-lasting battery and developing facilities to recharge the battery.

Loman also expects that the government is able to set regulations related to electric motorcycle's quality, spare parts and their safety. If the government fails to regulate the upcoming vehicles, it is feared that consumers may be exposed to low-quality units of electric motorcycle that circulate in the market.

The battery waste management is also becoming a major concern for motorcycle manufacturers in Indonesia. The absence of a policy scheme that regulates the downstream of the electric motorcycle industry, especially in managing the motorcycle's battery waste, may cause environmental problems in the future.

"We do not want the good intentions of delivering environmentally friendly products and fuel efficiency to cause another new problem in the society because we neglected the safety and environmental impacts due to the poor battery waste management," he said.

Loman added that electric motorcycles may potentially disrupt the national automotive industry, as there will be other supporting players in the industry that are affected by its presence.

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