National Automotive Plan

National Automotive Policies (NAP) The National Automotive Policy (NAP) was introduced on 22 March 2006 to facilitate the required transformation and optimal integration of the local automotive industry into regional and global industry networks within the increasingly liberalized and competitive global environment.

The objectives of the NAP review were to: ensure orderly development as well as long term competitiveness and capability of the domestic automotive industry as a result of market liberalisation; * create a conducive environment to attract new investment and expand existing opportunities; * enhance the competitiveness of the national car manufacturer through strategic partnership; * foster the development of the latest, more sophisticated technology in the domestic automotive industry; * develop high value-added manufacturing activities in niche areas; * enhance Bumiputera participation in the domestic automotive industry; * improve safety standards for consumers and promote environment-friendly opportunities; and * enhance the implementation of current NAP’s policy instruments.

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The National Automotive Policy (NAP) that relevant to Encik Saiful Alawi makes decision whether is not Proton collaborates with a strong foreign partner in order to strengthen its technology base, financial capability and marketing reach. The NAP that relevant are: 1) Malaysia –The regional Opportunities under the ASEAN Free Trade Area (AFTA) In line with Malaysia’s commitment under AFTA and to encourage competitiveness in the automotive industry, import duties on imported vehicles Completely Built Unit (CBU) and locally assembled vehicles Completely Knocked Down (CKD) vehicles from ASEAN countries have been reduced to 5% and 0% respectively. For vehicles from non-ASEAN countries, the import duties on CKD vehicles have been reduced to 0% -10% whereas import duties on CBU vehicles were reduced to 30%.

Trade liberalisation within ASEAN has opened up a vast regional market, providing export opportunities for automotive and component manufacturing companies.

Carmakers will also be able to source cost-competitive components from ASEAN countries and benefit from potential economies of scale. From here, it can bring benefit to the foreign partners that collaborate with Proton. While this can be the reason why do PROTON need for the collaboration. Moreover Malaysia has no commitment to reducing the import duties for vehicles imported from non-ASEAN countries, in order to be equitable; the government has also reviewed the import duty structure on vehicles that are imported from non-ASEAN countries.

This will cause the foreign competitors car whose enter to Malaysia to be high price that might be indirectly increase the PROTON sales.

From investors view, it is worth to invest when a company generates profit. 2) The incentives for manufactures of critical and high value-added parts components that benefit the foreign investor than collaborate with PROTON. Incentives for the Manufacture of Critical and High Value-added Parts and Components for the Automotive Industry. Companies undertaking the manufacture of selected critical and high value-added parts and components for the automotive industry are eligible for: i) Pioneer Status (PS) with income tax exemption of 100% of the statutory income for a period of ten years.

Unabsorbed capital allowances as well as accumulated losses incurred during the pioneer period can be carried forward and deducted from the post pioneer income of the company; or ii) Investment Tax Allowance (ITA) of 100% on the qualifying capital expenditure incurred within five years from the date the first qualifying capital expenditure is incurred. This allowance can be offset against 100% of the statutory income for each year of assessment.

Any unutilized allowances can be carried forward to subsequent years until they are fully utilized. The qualifying parts and components for the automotive industry are as follows: – transmission systems; – brake systems; – airbag systems; and – steering systems

Investments in the assembly or manufacture of hybrid and electric vehicles will be granted: – 100 per cent ITA or PS for a period of 10 years; – customized training and R;amp;D grants in addition to the existing grants; – 50 per cent exemption on excise duty for locally assembled/manufactured vehicles or provision of grant under the Industrial Adjustment Fund (IAF); – PS of 100 per cent for 10 years or ITA of 100 percent for 5 years for manufacture of selected critical components supporting hybrid and electric vehicles, such as: • electric motors; • electric batteries; • Battery Management System; • inverters; • electric air conditioning; • air compressors

The NAP Review introduces substantially higher tax exemptions for exported goods with a significant portion of value added in Malaysia. This reflects the country’s goal to expand the amount and quality of exports. A tax exemption on statutory income for all sectors is offered based on the percentage increase in its value added. The tax exemption on statutory income for manufacturers in the automotive industry is enhanced: – from 10 to 30 per cent of the value of increased exports, provided the goods attain at least 30 per cent value added; and – from 15 to 50 per cent of the value of increased exports provided that the goods attain at least 50 per cent value added.

As a conclusion, Encik Saiful Alawi should consider this NAP that bring benefit to foreign investor that invest in Malaysia rather than other countries that do not have such the incentives. 3) Full liberalization of local assembled luxury passenger vehicles above 1800 cc with on-the-road prices of above RM 150,000. Foreign firms can apply for manufacturing licenses to hold 100% shares in firms to produce vehicles with engine capacity of larger than 1,800cc and costing more than RM150,000. This will open up the upper end of the market while keeping the lower end where Proton and Perodua are protected. For example, ABC Corp that wants to invest their automotives brand in Malaysia.

ABC Corporations alliances or collaborate with national automotive industry. Foreign can focus their products on luxury passengers’ vehicles whereas national automotives industries just focus in producing the family passengers’ vehicles. From this, foreign firm and alliance with the national automotive industries and together get benefit from this. As a conclusion, before Encik Saiful Alawi makes decision whether to joint venture with foreign firm. He should understand first the changes of the current National Automotive Policy that might be brings the benefits to the foreign firm so that these can be one of the factors they considered whether they want to take granted from the policy in Malaysia.