Govt ends tax breaks for hybrids and EEVs

ALL SYSTEMS GO: (From left) MITI Deputy Minister Datuk Hamim Samuri, Mustapa and MITI Secretary General Datuk Dr Rebecca Fatima Sta Maria at the announcement of the NAP 3.0 in Kuala Lumpur. Mustapa says car manufacturers who want to enjoy tax exemptions on hybrid and electric vehicles will have to assemble the vehicles locally. (Pic by Hafzi Mohamed)

The government has abandoned its tact to offer tax exemptions for fully imported hybrid and electric cars because it has failed to attract investments to assemble such vehicles in Malaysia over the past four years.

This was announced as part of the third iteration of the National Automotive Policy (NAP) that was unveiled yesterday.

International Trade and Industry Minister Datuk Seri Mustapa Mohamed said the Treasury Department found that tax-exempted fully imported hybrid and electric vehicles had not provided the spark to create their assembly in Malaysia.

“Our aim at that time was to encourage production and local assembly, as these cars were built and assembled abroad, and after four years the idea did not take off and for that reason we have decided to discontinue this policy,” he said in Kuala Lumpur yesterday.

Mustapa said car manufacturers who want to enjoy tax exemptions on hybrid and electric vehicles will have to assemble the vehicles locally, citing Honda Malaysia’s recent launch of its completely-knocked down (CKD) Honda Jazz manufacturing plant in Malacca as an example.

The excise duty for completely built units (CBU) of hybrids currently is between 65% and 105% based on the engine displacement of the car while the duty on electric vehicles is based on their power output.

He said Ministry of International Trade and Industry (MITI) and related government agencies are currently in talks with three car manufacturers to start CKD operations in Malaysia and hope to have “substantial” investments within this year.

The NAP 3.0 was highly anticipated because Malaysians had expected the government to announce its pol icy on providing more affordable cars which was part of the present government’s election promise.

Mustapa said this will come under the Car Price Reduction framework, whereby a gradual reduction of prices ranging from 20% to 30% will take effect over the next five years with the government promising that more competitively priced cars will be introduced in 2014.

The NAP is the roadmap for Malaysia’s auto industry to regain its prominent role in the region through encouraging more exports and improving the support structure to make this possible.

This includes increasing quality of products and focusing on energy efficient vehicle (EEV) production.

Under the NAP, Malaysia intends to strengthen the whole automotive industry as it aims to become the EEV and component production hub for the region, especially under the Asean Community market.

By 2020, the government expects 80% of all vehicles produced locally to be EEVs.

The EEV hub initiative is expected to have a positive impact on environment conservation as well as encouraging high-income job creation, transfer of technology and new economic opportunities for local companies.

As part of the EEV initiative, Mustapa outlined studies on the costs and benefits that are currently being undertaken by the government in introducing Euro 4 fuel, which is suitable for fuel-efficient vehicles. The government is expected to make a decision on its introduction in the next two months.

Employment is one of the main contributions of the NAP 2014, whereby about 550,000 people will be directly employed by the automotive industry.

With this policy, it is expected that 150,000 more jobs will be created by 2020, while local skilled and semi-skilled workers will replace 80% of foreign workers in the automotive manufacturing sector by 2020.

The new policy also aims to increase exports of vehicles to at least 200,000 units and exports of components to reach a minimum of RM10 billion in 2020.

Under the NAP 2014, the government will continue its support of the national car industry which includes market expansion activities, improving quality and productivity, cost reduction and development of supply chain based on their transformation plan.

The NAP unveiled yesterday also contained a surprise as the controversial import Approved Permit (AP) system will continue.

Mustapa said a study will be undertaken by a yet to be appointed agency to assess the impact of the termination of the AP policy on Bumiputera participation in the automotive sector.

While denying that the government has backtracked on its initial plan to end the scheme by December next year, the minister said: “The abolishment or continuation of the policy will be decided after the study.

“The study will be undertaken by a company sometime after the Chinese New Year.”

The previous NAP unveiled in 2009 specified termination of the open APs by Dec 31, 2015, and the franchise APs by Dec 31, 2020.

Overall, the policy provides a total financial package of about RM2 billion as well as measures and implementation plans to realise the NAP 2014.

Touching on excise duties, Mustapa said the government will not be revising the duties at present and will do so when fiscal situation permits.

The government’s current budget deficit makes it hard for it to review the tax and Putrajaya is open to the possibility of reducing excise duties gradually when fiscal situation improves, he said.

There are six roadmaps and action plans developed to complement the implementation of the NAP 2014 and serve as guidelines for the transformation of the local automotive industry, namely the Malaysian Automotive Technology Roadmap, Malaysia Automotive Supply Chain Development Roadmap, Malaysia Automotive Human Capital Development Roadmap, Malaysia Automotive Remanufacturing Roadmap, Development of Automotive Authorised Treatment Facilities Framework and Malaysia Automotive Bumiputera Development Roadmap.