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UPDATE 1-Malaysia lowers car import duty, imposes excise duty

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By Jalil Hamid

KUALA LUMPUR, Dec 31 (Reuters) - Malaysia cut import duties on cars on Wednesday, a year ahead of schedule, but imposed excise duties of 60-100 percent to help offset the revenue fall.

The changes, which had been hoped for sooner rather than later and will see import duties lowered to 70-200 percent for fully imported models and to 25-35 percent for locally assembled units, will take effect on Thursday.

Southeast Asia's second biggest car market, Malaysia was due to reduce tariffs in 2003 under the regional ASEAN Free Trade Agreement but asked for a two year extension till 2005.

It currently imposes duty of up to 300 percent on foreign imports as part of government policy to protect its national car maker Proton , a move that hampered trade liberalisation moves within the Association of South East Asian Nations (ASEAN).

Car firms, which have had a tough year as Malaysians held back on vehicle purchases in the hopes of a hefty price fall, were disappointed with the new structure, saying there was little benefit to buyers.

"This is a joke. They might as well have not done anything," used car dealer Lawrence Silvamuthu told Reuters.

He said the news would, however, be a relief to the industry as buyers might return now that the changes were finalised and the uncertainty was out of the way.

The new excise duty imposed on foreign-made cars would remove most of the benefits from the import duty cuts.

Prime Minister Abdullah Ahmad Badawi, who announced the changes in a three-page statement, made no mention about Proton which has been getting a 50 percent discount on excise duty.

Analysts said Proton, Malaysia's best-seller, stood to lose out if its decades-old preferential tax treatment was not extended.

"Proton may be the biggest loser," said an auto analyst at an European house, adding that it stood to lose its price edge over rivals such as Toyota and Honda .

Abdullah said the government had decided to extend the import tax concession to non-ASEAN cars even though it was not bound to do so.

"However, in order to be equitable, the government has also reviewed the import duty structure on vehicles that are imported from non-ASEAN countries," he said.

Detailing the new tax structure, Abdullah said import duties on CKD (completely knocked down) cars below 1,800 cc from ASEAN, for example, would be cut to 25 percent from 42 percent.

But the excise duty will be raised to 60 percent from 55 percent, meaning an effective tax rate cut of 12 percent.

The same CKD car imported from non-ASEAN countries will now be subjected to an import duty of 35 percent and an excise duty of 60 percent.

This compares with a current import duty of 42 percent and an excise duty of 55 percent, meaning a saving of just two percentage points. A different rate will apply for completely built up (CBU) cars.

CBU cars from ASEAN will be subjected to a maximum import duty of 190 percent and an excise duty of 100 percent, versus the current maximum import duty of 300 percent and nil excise duty.

But for non-ASEAN CBU cars, the maximum import duty will be 200 percent with an excise duty of 100 percent, versus an import duty of 300 percent previously.