M'sia offers duty, import tax exemptions for energy efficient vehicles

IN A BID to attract investments and to wrest back its position as a regional automotive powerhouse, Malaysia will exempt excise duties and import taxes on energy efficient vehicles (EEVs) assembled in the country.

Some RM2 billion (S$773 million) in financial support will also be provided to investors over the next seven years.

International Trade minister Mustapa Mohamed, announcing the National Automotive Policy (NAP) 2014, told a media conference in Kuala Lumpur yesterday that companies which assemble EEVs locally will be considered for a manufacturing licence.

Before this, the only companies granted such licences were those which assembled vehicles more than 1,800 cc in capacity and costing more than RM150,000. This was a policy designed to protect local national car companies Proton and Perodua, which competed in the small-car segment.

Unlike Perodua which has a long-time partner in Japan's Daihatsu Motor, Proton's future could become even tougher with the car market liberalised. The brainchild of former Prime Minister Mahathir Mohammad, Proton now claims only a quarter in market share, down from the 70 per cent it commanded soon after its inception in 1983.

Proton is now owned by the listed DRB-Hicom.

Mr Mustapa acknowledged that the national car project has been instrumental in upgrading local engineering skills and providing employment, but noted that the sector has been gradually liberalised in recent years as a result of commitments under free trade agreements.

Malaysia has been losing auto investments to rivals Thailand and Indonesia, but the EEV policies are aimed at putting it back in the game.

"There are no investment and equity conditions, and also no export conditions," said Mr Mustapa.

Duty and tax exemptions for locally-assembled hybrids will be extended until the end of next year, and till the end of 2017 for electric vehicles; after that, tax breaks will be based on the strategic value of the investments.

New EEV plants planned by Honda, Perodua and Mazda have already been given approval, with Honda already producing the hybrid Jazz locally.

Mr Mustapa said import and excise duty exemptions on imported hybrids enjoyed by mainly Honda, Toyota and Lexus in the last three to four years had not benefited the country and will be discontinued.

Excise duties range between 65 per cent and 105 per cent, although after grants and incentives, the average excise tax levied is about 50 per cent.

It appears the NAP will need tweaking, since the current definition of EEV is based on fuel efficiency rather than carbon emissions. Malaysia is still stuck in Euro 3 diesel emission standards owing to its fuel subsidy issues, though it is planning a study on the costs and benefits of introducing Euro 4 diesel.

An in-depth study will also be carried out to assess how bumiputra participation in the sector will be affected if an import permit scheme for vehicles - called the approved permit or AP scheme - is scrapped by the end of next year as scheduled. Many individual AP holders, linked to top politicians, are said to be lobbying for the scheme to be continued.

The NAP aims to transform Malaysia into a regional automotive hub for EEVs and to raise the number of vehicles exported to 200,000 units by 2020.

About 85 per cent of vehicles produced locally by that year are expected to be EEVs.

Of an estimated 648,000 units sold in the country last year, some 16,000 (or 2.5 per cent) were hybrids.