Budget 2022 Roundup: Rejuvenating the Automotive Industry

Malaysia’s Budget 2022 was tabled by Finance Minister Tengku Datuk Seri Zafrul Abdul Aziz on 29 October 2021, with the theme “Keluarga Malaysia, Makmur Sejahtera (A Prosperous Malaysian Family)”.

The Budget is designed to stimulate the recovery of the Malaysian economy after the damage wrought by the Covid-19 pandemic. The government has allocated a total of RM332.1 billion for Budget 2022, the largest in history.

In line with the theme of recovery and stimulus, the automotive sector is also included in the raft of initiatives to incentivize and strengthen the industry, as well as encourage demand from consumers.

Electrifying Malaysia’s Roads: EVs to be Tax Free

The big automotive headline in Budget 2022 is the focus on electric vehicles (EVs). The Government is focusing on EVs as a means to minimize air pollution and be carbon neutral by 2050, while encouraging development of the local EV industry.

The Tesla Model 3

The following items apply to EVs under Budget 2022:

  • Full exemption on import duty, excise duty and sales tax for EVs (both imported and locally assembled).
  • Road tax exemption of 100% for EV owners.
  • Tax relief of up to RM2,500 for purchase, installation, and rental of EV charging facilities (including subscription to EV charging).

This means that fully imported EVs like the Tesla Model 3, the Nissan Leaf, and even Porsche’s monstrous Taycan will be import tax free and road tax free starting next year. With this, it is expected that EV adoption will rise, as well as spurring EV manufacturers to set up manufacturing operations in Malaysia.

The EV incentives will run from 1 January 2022 to 31 December 2023 at the earliest.

Revitalizing the Automotive Sector: SST Exemption on New Cars Extended

With the automotive sector grinding to a halt during the lockdowns this year, the Government is looking at rejuvenating this key sector of the Malaysian economy.

To that, it has also proposed that the sales tax (SST) exemption on passenger cars (including MPVs and SUVs) be extended to 30 June 2022.

The SST exemption extension uses the same terms as those first introduced under the PENJANA and PEMERKASA+ stimulus packages, which are as follows:

  • 100% exemption for locally-assembled and completely-knocked-down (CKD) cars.
  • 50% exemption for new and reconditioned completely-built-up (CBU) cars.

Malaysian Automotive Association (MAA) president Datuk Aishah Ahmad told the New Straits Times that the SST exemption is a welcome move to stimulate the sector, helping total industry volume (TIV) to bounce back to the pre-Covid level of 600,000 units. Nevertheless, these efforts could be hampered by the worldwide semiconductor shortage that has caused production delays.

Upgrading Roads and Key Infrastructure

To increase the mobility of Malaysians, the Government has also proposed a set of measures to develop roads, especially in rural areas with a focus on Sabah and Sarawak. Major highway projects will also be given priority.

The following are the allocations put forward for road infrastructure in Budget 2022:

  • RM1.5 billion to implement rural and inter-village road projects spanning 519 kilometers that will benefit over 130,000 people.
  • RM3.5 billion for the construction of the Pan Borneo Highway and Central Spine Road, including immigration access points on the Pan Borneo Highway for an anticipated increase in border traffic following Indonesia’s proposal to move its capital to Kalimantan.

The focus on rural roads should give Malaysians living in these areas better access to facilities and commercial opportunities, while better connecting rural and urban areas for greater economic benefits.