The Indonesian government this week announced new local tax rates to help incentivise purchases of electric vehicles (EVs), according to local reports.

The luxury tax on battery powered vehicles will remain at 0% while, for plug-in hybrid vehicles, the tax will rise to 5% from 0%, according to local reports citing a draft regulation issued by the finance ministry this week.

The luxury tax on other hybrid vehicles will rise to between 6%-12% from a previous range of 2%-12%. The new rates will apply only to locally-produced vehicles.

EV recharging infrastructure remains limited in the country, however, which is seen as a key impediment for growth in local demand for plug-in vehicles along with high prices.

EV sales in the country amounted to just 120 units last year while hybrid sales exceeded 1,000 units, according to reports.

Under draft regulations, the government plans to increase tax incentives for local EV sales once commercial production is ramped up with the luxury tax on plug-in hybrids set to rise to 8% while other hybrids will see their tax increased to between 10%-14%.

The government wants the local automotive industry to take advantage of the global switch to electric vehicles over the next 15 years.

Last week, a government minister confirmed Honda and Mitsubishi have pledged investments in electric and hybrid vehicle production in the country while Toyota and Hyundai have already outlined their EV plans.

Indonesia is rich in natural resources such as nickel and the government is looking to establish a major global production hub for EV batteries which it expects will also help reduce prices of EVs locally.