Its minister, Tengku Zafrul Aziz, said excise duty plays a crucial role in encouraging value-added activities, especially local assembly, completely knocked down (CKD) activities and vendor development.

“This (excise duty) is meant to encourage local vendors to participate in the development of the automotive industry,” he said during the question-and-answer session in Dewan Rakyat today.

Replying to a supplementary question from Wee Ka Siong (BN-Ayer Hitam), Tengku Zafrul said the government has offered tax incentives in the form of exemptions or reductions in excise duty and sales tax.

The government has also provided import duty exemptions and reductions for imported components in local vehicle assembly activities, he said.

He said the rate or level of incentives provided is subject to the merits of the business plan, such as the amount of investments, vendor development, technology transfer and export plans.

“Automotive products such as completely built-up (CBU) and CKD vehicles, as well as imported components, are also able to enjoy much lower rates of import duty, even up to 0%, under the Asean Trade in Goods Agreement,” he said.

He said the approach would enable the government to develop a competitive automotive industry through economic goods generated from value-added activities while also expecting vehicle prices to reduce.

Responding to a supplementary question from Azahari Hasan (PN-Padang Rengas), Tengku Zafrul said the excise duty for affordable vehicles, especially cars below RM50,000, is only between 2% and 5%, compared to the higher rates of between 60% and 110% for luxury cars.

“We hope that with technological advancements, car prices will drop along with higher demand in the future,” he said.

He said vehicle prices are not controlled by the government but influenced by market forces, namely the costs of components used, transport and logistical costs, insurance, loan rates and technology costs.