Malaysia will impose excise duties on imported cars to make up for revenue losses when the country begins to cut import taxes from January 1 next year in accordance with the Asean Free Trade Area agreement, Prime Minister Mahathir Mohamad said on Friday, according to Kyodo News.

Sales of passenger cars have declined sharply this year because Mahathir said consumers are postponing their purchases in anticipation of lower prices on imported cars when the automotive sector is liberalised under AFTA.

Sales of passenger cars in the January-June period have tumbled 12% to 161,265 units from 182,706 units last year, mainly dragged down by the 25% drop in sales of cars produced by national carmaker Perusahaan Otomobil Nasional Bhd. (Proton) from 113,680 units last year to 85,430 units this year.

Six out of every 10 cars on the road now are Protons. But even before Malaysia, the biggest passenger car market in Southeast Asia, opens its car market, Proton is facing an influx of competitively priced foreign makes.

Dashing consumers’ hopes to ditch their underpowered Proton cars for better foreign models, Mahathir said, “To mitigate losses in revenue, the government proposes to levy excise duties on imported cars when import duties are reduced from January 1, 2004.”

“Therefore, consumers are encouraged to purchase cars now for themselves and their families,” he said, speaking before Parliament during the tabling of the 2004 budget.

Mahathir did not specify how much the excise duty would be, but it is understood that it would also be applied to Proton and other domestic cars.

The AFTA tariff reduction scheme was originally scheduled to begin by 2003, but Malaysia received approval from its ASEAN partners to defer it for another two years to allow the local producers to shape up.

The government would make a series of tax cuts on complete-knocked-down (CKD) kits starting in 2004 until it reaches a flat 20% on January 1, 2005, before ending at 5% by 2008, Kyodo News said.