The government said today it will cut taxes in an attempt to enhance the competitiveness of national carmakers Proton and Perodua, and as part of a bid to become a regional hub for car manufacturing and exports.

In a seven-page statement on the framework of a long-awaited national automotive policy, the government listed several measures to promote growth in Malaysia's ailing automotive sector.

The six objectives were adopted by the cabinet this morning.

"It is to produce a clear and transparent policy for the auto industry. This policy is a long-term policy. There will be refinements made in accordance with global conditions," a government official told reporters.

"The cabinet approved the new auto policy today. It will take effect today. The government hopes there will be a thriving auto industry."

"The policy is supportive of Proton and Perodua. It will help them to export," he said.

Asked whether it will attract much needed foreign investment into the industry, he said, "It is hard to predict.

"I expect foreign investors to come to Malaysia. Malaysia is the largest passenger car market in Asean. With grants and incentives given, I think they will deepen their commitment and export more from Malaysia."

Effective Thursday, duties imposed by the government for passenger cars will come down, he said adding that for Asean cars, it will come down from 15 percent to five percent. He did not elaborate on other figures.

The statement said the government aimed to "promote a competitive and viable domestic automotive sector, in particular the national car manufacturers" and "promote Malaysia as an automotive regional hub, focusing on niche areas."

Malaysia also hoped to promote "a sustainable level of economic value added and enhance domestic capabilities, a higher level of exports of vehicles as well as components and parts that are competitive in the global markets."

It also hopes to promote "competitive and broad-based bumiputera participation in the domestic automotive sector and to safeguard the interests of consumers in terms of value for money, safety and quality of products and services."

Key changes

One of the key changes announced is a reduction in the Association of Southeast Asian Nations' (Asean) Common Effective Preferential Tariff import duty to five percent for qualifying vehicles.

The move, effective immediately, has been brought forward from an initial date of Jan 1, 2008 to promote Malaysia as an exporting hub.

"While this will expose the domestic industry to greater competition, it is consistent with the policy thrust for rationalisation of models and increasing scale through exports."

Malaysia said it would also phase out its controversial "approved permit" system for car imports by Dec 31, 2010.

"The importation of second-hand cars will be progressively phased out culminating in a total ban in 2010, in order to stimulate demand for locally manufactured and assembled vehicles."

The approved permits scheme was launched in 1970 as a way to help ethnic Malays business people who were lagging behind the minority Chinese.

But former premier Mahathir Mohamad has said the permits have undermined Proton's position by allowing under-priced foreign vehicles into Malaysia.

The national market share of embattled carmaker Proton was 41 percent last year, down from 60 percent in 2002.

The barely profitable company has struggled with a reputation for producing shoddy and unimaginative models. And as the government has whittled away protection, foreign imports have become even more attractive.