Indonesia, a top supplier of a key battery metal, will aim to boost sales of electric vehicles with a new regulation that will cut tax breaks for hybrid cars.

Battery-powered electric vehicles will

retain their 0% luxury tax rate, while plug-in hybrid vehicles will see their tariff increase to 5% from 0%, according to a draft regulation issued by the finance ministry on Monday. Full and mild hybrid types will be taxed at a rate of 6%-12%, compared with a previous range of 2%-12%.

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The new rates will apply only to locally-produced vehicles.

This is the latest in a series of initiatives that Indonesia has unveiled to meet its ambition to become a global EV battery hub. The country wants to expand its role as a major source of nickel — used in the batteries — to also producing other components as demand for greener transport skyrockets across markets like the U.S., China, Japan and Europe.

Worlds Top Nickel Producer Sets Out End-to-End Battery Ambition

Higher rates will kick in in two years after the battery-powered EV sector realizes investments of 5 trillion rupiah ($347 million), or when it starts commercial production with an investment of the same amount. After this, plug-in hybrids will be taxed at a rate of 8%, while other hybrids will see a tariff of 10%-14%, the draft rules showed.

While Southeast Asias largest economy has

caught the attention of the worlds major battery makers, the government is also keen to

prop up the usage of electric vehicles in the fossil-fuel dependent country, especially where traditional and hybrid cars remain cheaper. Only 120 electric vehicles were sold there in 2020, about a tenth of the sales of hybrids, industry data showed.

Indonesia, among the countries most vulnerable to climate change, has shown renewed focus on reducing its carbon emissions, with the government weighing

incentives for clean-energy use and expanding its

renewables sector.

The transport sector accounts for nearly 30% of the countrys total emissions, with land transport comprising bulk of it. Indonesia has committed to reduce its emissions by at least 29% by 2030 under the Paris Agreement.

With assistance by Grace Sihombing

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