KL cuts duties to meet AFTA obligations

KL cuts duties to meet AFTA obligations

Antara/Kyodo, Kuala Lumpur

Malaysia announced Friday that it will slash import duties on motorcars from other members of the Association of Southeast Asian Nations to 20 percent from as much as 190 percent from January next year in a long-awaited move to conform with the 10- member regional grouping's free trade plans.

Under pressure from other automakers in the region such as Thailand and Indonesia, Malaysia's Finance Ministry said it will bring down the high import taxes, which had been maintained to protect Malaysia's two national car companies -- Proton Holdings and Perusahaan Otomobil Nasional Kedua, better known as Perodua.

While other ASEAN members have cut their import duties on motorcars to between 0 and 5 percent last year under their plans for an ASEAN Free Trade Area, known as AFTA, Malaysia has deferred complying until at least next year to give local carmakers more time to brace for competition from U.S., European and Japanese carmakers who assemble their cars in other Southeast Asian countries, mainly Thailand and Indonesia.

The Finance Ministry statement did not mention any plan to eliminate the 50 percent rebate on excise duties enjoyed by Malaysian car manufacturers, which has also been criticized by Thai automakers.

But an official of the ministry said there are plans to replace the rebate with a less discriminatory system of incentives next year to help the local car industry improve its competitiveness, such as offering tax incentives or grants for training, and research and development.

The ministry statement said the import duty on car components from other ASEAN members will be brought down to zero from the current 25 percent from January next year.

But excise duties will be raised steeply for both local and foreign cars to between 90 percent and 250 percent. Nevertheless, auto exporters from other ASEAN members can still expect to reap a net reduction of about 20 percent even after the excise duties have been factored in.

"The move demonstrates that Malaysia is meeting its AFTA commitment," the ministry official said. "Thailand and Indonesia would like to export their cars to us. With this move, ASEAN cars will have a competitive advantage."

For the time being, local car manufacturers will still be cushioned by the existing 50 percent excise tax rebate, which will lessen the pain from the increase in excise tax.

"The government does not expect major price changes in the cars produced or assembled in Malaysia during 2005,'' the ministry statement said.

"To ensure the longer term viability of the local automotive industry as well as to maintain stability of motor vehicle prices in Malaysia, the government will extend to the local automotive industry similar fiscal incentives that have been provided to other sectors of the economy," it said.

The ministry also said the import duty on foreign-made motorcars from non-ASEAN countries will be cut to a flat rate of 50 percent for most types of vehicles, but after taking into account the increase in excise duties of up to 250 percent, there will be no net change overall for such imports.

Malaysia is Southeast Asia's biggest market for passenger cars.

ASEAN groups Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam.