The government today announced it will cut import duties from January 2005 on cars from Southest Asian countries in line with a regional trade pact but will still give local producers' rebates.

The Finance Ministry in a statement on Malaysia's 2005 auto tax policy said it will cut import duties to 20 percent from Jan 1 on cars that are at least 40 percent produced in member countries of the Association of Southeast Asian Nations (Asean).

"In line with Malaysia's commitment under the Asean Free Treade Area (Afta), the import duty on all categories of motor vehicles imported from Asean will be reduced to 20 percent effective January 2005," it said.

Malaysia currently imposes import duties of 70 percent to 190 percent.

The reduction was to have been made in 2003 but Malaysia sought a two-year extention until January 2005 to protect its national car maker Proton.

It said that to offset the fall in government revenue due to the cut in import duties, the government would raise excise duties on all new cars sold in the country to between 90 percent and 250 percent, from 60 percent to 100 percent now.

"There will be an increase in excise duty and a decrease in import duty across the board with effect from January 2005," it said.

No major price change

The Finance Ministry said it does not expect major price changes in cars produced or assembled in Malaysia during 2005.

Azrul Azwar, senior economist with MIDF Bhd said he was not suprised by the announcement to cut import duties and to replace lost revenue by hiking excise duties.

"There is no incentive to consumers in the form of lower car prices. They do not enjoy much benefit due to lower import duties," he said.

Auto tax revenue makes up about nine percent of Malaysia's total annual tax revenue of around RM65 billion ringgit.