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Strategic VAT Subsidies: Accelerating Domestic Component Level in Indonesia’s EVs

The Domestic Component Level (Tingkat Komponen Dalam Negeri or TKDN) certification has become an essential element in the progress of industries in Indonesia. Business actors must take a crucial step of securing government assistance for TKDN certification. TKDN, represents the proportion of domestically produced components' value. This concept encompasses a wide array of products, spanning both goods and services, along with the linked transport costs. TKDN functions as a tool employed by the government to promote the usage of domestic products and bolster the national industry.

One of the industries that implements TKDN (Domestic Component Level) is the electric vehicle industry. As of April 1, 2023, the government has provided a incentives for electric cars and electric buses sold in Indonesia. There are dozens of electric cars available in Indonesia. However, not all electric cars sold in Indonesia are eligible for Value Added Tax (VAT) incentives. Electric cars that can receive the "subsidy" are required to have a minimum TKDN of 40%.

The incentives for electric cars is regulated in the Minister of Finance Regulation Number 38 of 2023 concerning Value Added Tax (VAT) on the Delivery of Certain Four-Wheeled Battery-Based Electric Motor Vehicles and Certain Battery-Based Electric Motor Buses Covered by the Government in the 2023 fiscal year.

As stated in Article 3, for the government to cover the VAT on electric cars, they must meet a minimum TKDN of 40%. It is also mentioned in Article 4, paragraph 2, that the government will cover 10% of the VAT on electric cars. This means that electric cars sold in Indonesia without a TKDN value of 40% cannot utilize this incentive. the TKDN requirement is a minimum of 35% for 2019-2021, a minimum of 40% for 2022-2023 a minimum of 60% for 2024-2029, and a minimum of 80% for 2030 onwards. This is to further promote the presence of electric vehicles in Indonesia.

Furthermore, from 2026 to 2030, the minimum TKDN requirement for electric cars will be 60%. However, referring to Presidential Regulation (Perpres) No. 55 of 2019, the TKDN requirement for four-wheeled or more vehicles from 2022 to 2023 is a minimum of 40%. However, The government will relax the implementation of the 40% domestic component level (TKDN) requirement for electric cars in Indonesia from 2024 to 2026. For four-wheeled electric vehicles.

If you, a prospective client, have further inquiries about the topic discussed above, Schinder Law Firm is one of many corporate law firms in Indonesia that has handled a lot of similar matters, with many experienced and professional corporate and civil lawyers in its arsenal, making it one of the top consulting firms in Indonesia. Feel free to contact us at info@schinderlawfirm.com for further consultation.

Author: Budhi Satya Makmur

Schinder Consultant London Ltd.


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