New Incentives Unveiled In Malaysia's National Automotive Policy Review

by Mary Swire, Tax-News.com, Hong Kong

03 November 2009

The government has reviewed Malaysia’s National Automotive Policy (NAP) and introduced new measures targeted at improving the long-term viability of the national automotive industry, including the development of greener and technologically more advanced vehicles.

The NAP was introduced in March 2006 in order to facilitate the strategic direction of the automotive industry under the Third Industrial Master Plan, 2006-2020.

It has now been reviewed, resulting in new policies and measures, covering licensing, duties, incentives, technology, environment, safety, standards and regulations that, it is hoped, will foster a more competitive market for local and international companies in the sector. Measures introduced following the review will be effective from January 1, 2010.

To reflect the country's goal to expand the amount and quality of vehicle exports, the review introduces substantially higher tax exemptions for exported goods with a significant portion of value added in Malaysia.

The tax exemption on statutory income for manufacturers in the automotive industry is enhanced from 10% to 30% of the value of increased exports, provided the goods attain at least 30% value added; and from 15% to 50% of the value of increased exports, provided that the goods attain at least 50% value added.

Malaysia confirmed its obligation under the Association of South East Asian Nations (ASEAN) and the World Trade Organization (WTO), and will therefore continue to implement its commitments under free trade agreements on the removal and reduction of import duties for automotive products. However, the rates of import duty and excise duty on complete built-up and complete knocked-down vehicles are to be maintained.

To promote the production of critical and high value-added parts and components, companies manufacturing transmission systems, brake systems, airbag systems and steering systems are to be eligible for “pioneer status” (PS) with a 100% fiscal deduction for 10 years or an investment tax allowance (ITA) of 100% for five years.

New measures to promote the development of hybrid and electric vehicles include a provision that investments in the assembly or manufacture of such vehicles will be granted 100% ITA or PS for a period of ten years; customized training and research and development grants in addition to existing grants; 50% exemption on excise duty for locally assembled/manufactured vehicles; and PS of 100% for ten years or ITA of 100% for 5 years for the manufacture of selected critical components supporting hybrid and electric vehicles, such as electric motors, batteries and air conditioning and air compressors.

The current freeze on issuance of new manufacturing licences will be lifted for several industry segments which are considered strategic, in order to produce higher margin, business-related vehicles, and more environmently-friendly vehicles.

Specifically, the new policy will lift the freeze of new manufacturing licences on luxury passenger vehicles with engine capacity of 1,800cc and above; pick-up trucks and commercial vehicles; hybrid and electric vehicles; and motorcycles with engine capacity of 200cc and above.

Vehicle assemblers are also allowed to make available their excess capacity to third parties to assemble new makes or models, on condition the models do not directly compete with those produced by national car manufacturers.

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