Taxes on imported cars are cut while APs will be awarded to foreign players
Malaysia is reducing taxes on imported vehicles to attract foreign car makers into the country, under a new policy aimed at challenging Thailand's position as the 'Detroit of South-east Asia'.
The new measures under the country's new National Automotive Policy take effect today and are aimed at ending more than two decades of tariff protection for national car maker Proton Holdings.
Vehicles made in Asean countries will be subject to a 5 per cent import tax, compared with 15 per cent before the cut, an official from the Prime Minister's Department told journalists yesterday.
Overall, Malaysia's protectionist taxes will be slashed by between 20 per cent and 40 per cent, with excise duties also being cut.
The tax cut, the second since Jan 1 last year, will 'expose the domestic industry to greater competition', a statement issued by the Prime Minister's office said.
The measure will narrow the price gap between Proton cars and those that are imported.
More than 500,000 cars are sold in Malaysia every year, of which nearly 30 per cent are imported, either as fully built vehicles or as kits for assembly here.
The new policy will also result in an end to the highly-controversial policy of granting Approved Permits (APs) to mainly bumiputera businessmen to import cars into the country.
'By 2010, the current system of giving out APs will be phased out,' the official with the Prime Minister's Office said.
He said a new system will be announced then to replace the current practice, which has been widely abused, and which touched off a major political controversy last year.
The government has since the 1970s dished out APs mainly to Malay businessmen as a leg-up under affirmative action policies.
This policy came under heavy fire from the public last year because the permits had been given to only a few select individuals and companies.
Prime Minister Abdullah Badawi's government has said there were a handful of 'AP kings' who controlled the permits, which were 'rented' out to car makers, distributors and dealers.
Under the new policy, APs will be given out to foreign car manufacturers as an inducement to set up shop in Malaysia.
In a nutshell: If a car manufacturer like BMW sets up a plant to make its 3-series model for sale domestically and for export, it is likely to be given APs to bring in its 5-series and 7-series.
'I expect foreign manufacturers will be attracted because Malaysia is South-east Asia's biggest car market,' the official said.
'Many of them are already here. We want them to deepen their commitment.'
There will also be a ban on imported second-hand cars that will take effect from 2010. This is to stimulate demand for cars that are produced domestically.
Malaysia will not be abandoning national car companies Proton and Perodua, even though it is removing protectionist duties ahead of its commitment to do so by January 2008, under the Asean Free Trade Area (Afta) agreement.
'The two national car companies will be given a fighting chance because they will have access to government grants,' the official from the Prime Minister's Department told reporters.
Proton and Perodua, which control more than 70 per cent of the Malaysian market, will have access to an industrial fund as well as a research and development grant to help them lower costs and improve quality.
The new policy on Asean-made cars is in line with Malaysia's commitment to Afta, and is primarily aimed at attracting foreign car giants such as Ford, General Motors, Honda and Toyota.
The bulk of South-east Asia's cars are now built in Thailand, closely followed by countries including Malaysia, the Philippines and Indonesia.
But despite the new tax regime, industry experts say prices of foreign cars may not go down dramatically.
A government crackdown last year revealed that a number of foreign car importers have been under-declaring the value of their imports in recent years in an attempt to escape prohibitive taxes.
'With the taxes coming down these companies will now declare the real value of their cars, and in some cases this may actually result in higher prices,' a car industry source told The Straits Times.
DISMANTLING PROTECTIONISM
Protectionist taxes on imported cars slashed by between 20 per cent and 40 per cent.
Import tax on Asean-made cars down to 5 per cent from 15 per cent.
Contentious system of awarding APs to mainly bumiputera businessmen will be phased out by Dec 31, 2010.
APs will be granted to foreign car-makers to entice them to set up base in Malaysia.
Imports of second-hand cars will be banned by 2010 to boost demand for local cars.
National car companies Proton and Perodua will be given special grants to help make them more competitive and increase exports.
