As our national auto policy is being written, there is every indication that it will continue to insist that the government needs the tax revenue obtained from automobile sales. It is high time we rejected this flawed argument.

The argument is one of the rationales behind replacing import tariffs with excise taxes. Well, the numbers are formidable: the automobile industry contributes to more than 5% of total government revenue, 30% of sales tax revenue, and 65% of annual excise duty revenue. The implied message to Malaysians seems to be: if we cut taxes, we will have to slash government services as well. Thus, our minds get distracted from the real issues.

The logic that the government will lose all this tax revenue if automobile taxes are reduced commits a major fallacy. This argument rests on a premise of false alternatives: car tax revenue or zero tax revenue.

However, if we think about it, the alternative is between raising tax revenue through high automobile taxes and its associated economic effects; and raising tax revenue through consumption and investment that would take place if the automobile taxes are reduced.

When the government reduces car tax revenue, it gains tax revenue through other channels; with added benefits to society and economy. Consider five possibilities.

First, when Malaysians find more money in their pockets due to reduced car prices, we will spend some of it on other things. The other things they buy will earn the government revenue through corporate taxes.

Second, the benefits can be augmented, just as loan payments are compounded. With lower car prices, Malaysians could be less burdened by debt servicing over many years, and be able to spend or save more in the long term. We currently spend so much repaying car loans; something that keeps losing value (automobiles).

Third, increased spending or saving will add to the funds companies can invest with or banks can loan out. This could spur investment in productive and innovative activities.

Fourth, there could be positive impacts on quality, when people can spend their money on products that meet their satisfaction, not substandard goods. This helps promote the higher-value added economy that forms a central and elusive part of our policy agenda.

Fifth, add to the above various social, health and environmental benefits. With lower prices, families may be able to purchase vehicles that are safer, and not, say, cram six people into a Kancil. Purchasing hybrid cars can be encouraged through tax incentives.

To my knowledge, the above benefits have not been articulated, although they are standard practice in economic cost-benefit analysis that informs policy-making.

The corporate tax rate fell from 40% in 1988 to the current 28% without debilitating government services. I don't think anyone said then that we cannot reduce corporate taxes because the government 'needs the money'.

Indeed, the reduction was implemented on grounds that it enhances economy-wide performance. Why can't the government come up with a programme for progressively phasing down onerous car taxes?

Our leaders need to stop shifting the burden of propping up our not-so-young-anymore car producers to the Malaysian taxpayer, and present to us objective and honest alternate scenarios. They must stop justifying high automobile taxes with the tagline that the government 'needs the money'. We certainly won't lose all that money. Granted, we might lose some of it, but that impact can be moderated by careful planning.

The government must not ignore the benefits Malaysia stands to enjoy from less punishing car prices. A knowledge-society government would present a more complete picture, with more alternatives than the persistent 'status quo or nothing' scenarios.