PETALING JAYA, 23 June 2020 – An economist has proposed that duties be removed on imported cars for six months as a trial towards ending protectionist measures for the Malaysian motor industry.
Speaking to FMT, Barjoyai Bardai said Malaysia would ultimately have to dismantle all forms of protection for the industry.
Under the present tax structure, imported passenger cars are subject to import duties, excise duties, and sales tax. Malaysian carmakers like Proton and Perodua are also subject to excise duties and sales tax.
There are no import duties for cars from countries which are part of an Asean free trade agreement, while cars from countries with Most Favoured Nation status are subject to import duties of 30% for completely built-up cars and 10% for locally assembled cars.
Excise duties range from 75% to 105% depending on engine capacity.
However, it is understood that Proton and Perodua’s utilisation of more local components entitles them to more rebates on excise duty.
Barjoyai said now would be a good time to “test” the impact of removing all the barriers as the government was trying to stimulate the economy.
“While most consumers will not be keen to buy a new car now unless they need it urgently, a six month exemption could provide insights into the impact of removing import and excise duties on the government’s revenue and the automotive industry.”
He said Proton and Perodua should not enjoy government protection anymore as they are both established and have strong international partners in Geely and Daihatsu.
“They have also improved the quality of their vehicles over the years.”
The 50% and 100% sales and service tax exemptions for new cars under the Penjana economic recovery plan, Barjoyai said, will not help much as it only effectively reduces the price of cars by around 5%.
Do Proton and Perodua still need protection?
Laurence Todd, research director for the Institute for Democracy and Economic Affairs said the duties, which contribute to higher prices for consumers have historically been in place to protect the local industry.
“However, Proton and Perodua have been around for decades, if they are still not able to compete with imports, then we have to ask will they ever be?”
Todd said countries with strong car industries had also exposed their domestic products to the discipline of competing in the global market, as in South Korea.
“The support from the state was made conditional on strong export performance, which whittled down the several prospective national champions to only a couple that were genuinely competitive.”
Todd said the incentives under Penjana are short-term measures to boost consumption but do not deal with the competitiveness of the Malaysian automotive industry.
“For the longer term, Malaysia should focus on promoting those industries that have demonstrated competitiveness abroad and, where the state does step in, it should be done on the basis of a clear strategy that involves some form of market discipline.”
Where car manufacturing is concerned, this market discipline would expose manufacturers to competition, either from imports or scaling down government support if the firms do not succeed in the export market.
“Otherwise we will continue to drive up prices with no long term economic benefit.”
Many vendors and jobs dependent on protectionism
However, Malaysian Institute for Economic Research (MIER) economist Shankaran Nambiar says the local automotive industry needs to be protected now more than ever.
“The sale of new cars is likely to go down, with the job losses, although second-hand car sales might not be affected as badly,” said Nambiar, who is MIER’s head of research.
“Malaysia’s domestic auto industry sits on the foundation of protectionism, now is simply not the time to withdraw the protection since many vendors and jobs depend on the protection.”
But Nambiar said the protectionist measures highlight the inefficiencies upon which the industry is built.
First published in Free Malaysia Today, 23 June 2020