The Malaysian government has announced that it will cut import duties on cars from neighbouring ASEAN member countries in line with a regional trade treaty. But at the same time, it also announced that there will be a compensatory increase in excise duty on new cars sold in the country and that local makers would continue to receive excise duty rebates.

In the much-anticipated move, the Malaysian Finance Ministry said that it will cut import duties to 20% from Jan. 1 on cars that are at least 40% produced in ASEAN member countries. Currently, Malaysia imposes duties of 70% to 190% on car imports from these countries. 

The changes are in line with Malaysia's responsibilities under the ASEAN Free Trade Area (AFTA) agreement.

But the government also announced that in order to offset the revenue fall due to the AFTA duty reductions, there will be increases to excise duties on all new cars sold in the country to between 90%% and 250%, from 60% to 100% now.

Somewhat controversially, Malaysian carmakers will continue to be able to claim excise duty rebates - at least for the first half of 2005 - something which could meet opposition from fellow car-producing ASEAN countries who will likely see it as an unfair subsidy for Malaysian producers.

Dow Jones repotred that a ministry official said the rebates will continue for the time being but would be changed in the first half of the year to an industry incentive system.