Government Has No Plans To Review Automotive Sector's Tax Structure - Tengku Zafrul

According to the Ministry of International Trade and Industry, the government has no plans to review the existing tax structure for the automotive sector, particularly the excise duty, which is critical for the industry's development. The minister, Tengku Datuk Seri Zafrul Abdul Aziz says that excise duty is critical in encouraging value-added activities, particularly local assembly (completely knocked down or CKD) activities and vendor development.

"The excise duty is intended to encourage local vendors to participate in the development of Malaysia's automotive industry," he said on Thursday during an oral question-and-answer session in the Dewan Rakyat (Feb 23). In response to a follow-up question from Datuk Seri Dr Wee Ka Siong (Barisan Nasional-Ayer Hitam), Tengku Zafrul stated that the government had provided tax breaks in the form of exemptions or reductions in excise duty and sales tax.

He also mentioned that the government has also provided import duty exemption and reduction for imported components used in local vehicle assembly activities. The rate or level of incentives provided, according to the minister, is contingent on the merits of the business plan, such as the amount of investment, vendor development, particularly for local vendors, technology transfer, and export plans.

"In addition to the incentive assessment mechanism for reducing vehicle duties and taxes, automotive products such as completely built-up and CKD vehicles, as well as imported components, can benefit from much lower rates of import duty, even up to 0%, under the Asean Trade in Goods Agreement," he explained.

He stated that the approach would allow the government to develop a competitive local automotive industry by generating economic goods from value-added activities, while also lowering vehicle prices.

In response to a follow-up question from Azahari Hasan (Perikatan Nasional-Padang Rengas), Tengku Zafrul explained that the excise duty on affordable vehicles, particularly cars priced below RM50,000, is only between 2% and 5%, as opposed to the higher excise duty rates of between 60% and 110% on luxury cars. "We hope that as technology advances, car prices will fall, resulting in higher demand in the future," he said.

He also stated that the government does not control vehicle prices, but that they are influenced by market forces such as the costs of the components used, transportation and logistical costs, insurance, loan rates, and technology costs.