The Malaysian government said it would exempt hybrid cars from import duties and excise taxes for a further two years after the current incentives expire at the end of 2011. The announcement was made as part of the release of its 2012 budget.

The government wants to stimulate domestic demand for hybrid vehicles and ultimately promote local production for the ASEAN regional market.

The two-year tax exemption applies to cars with engines below 2000cc. Domestic sales of hybrid cars have risen significantly since the tax incentives were introduced at the end of last year. 

Honda sold around 3,800 Insight model in the first eight months of 2011, followed by Toyota with 1,300 Prius. The government hopes to attract additional models to the market, including the all-electric Nissan Leaf.

Analysts believe that sales could exceed 10,000 units annually by 2013 as a result of the current tax exemptions.