The Impact of Consumption Tax Exemption on Electric Vehicle Sales

• In Event: Consumption Taxes in Developing Countries

Abstract

In April 2023, the Government of Indonesia (GOI) enacted regulations to incentivize electric vehicle (EV) adoption by granting value-added tax (VAT) exemptions. Furthering these incentives, in February 2024, the GOI introduced an additional regulation exempting luxury sales tax (LST) for luxury electric vehicles. This research investigates the causal effects of LST and VAT exemptions on EV sales in Indonesia. A critical condition for qualifying for both VAT and LST exemptions is meeting the minimum Domestic Component Level (Tingkat Komponen Dalam Negeri, or TKDN). EVs must achieve a TKDN of at least 40, meaning that 40% of the raw materials, components, and production processes must be sourced domestically. Utilizing national wholesale data on new car purchases from 2022 to 2024, sourced from the Association of Indonesia Automotive Industries (GAIKINDO), this research employs an event study and a difference-in-differences approach to analyze the impact of these tax policies on EV sales.

Author

• Boy Valentin Purba, Indiana University