Automakers Investing in Localisation Get Tax Exemption

New Customised Incentive Mechanism (NCM) Explained

The New Customised Incentive Mechanism (NCM) is the Malaysian government's revamped tax incentive framework for the automotive industry, designed to reward automakers that demonstrate genuine localisation efforts. This policy, under the purview of the investment, trade and industry ministry (MITI), is not a physical product but a fiscal tool to restructure how car manufacturers are incentivised within the country. The NCM addresses the problem of vehicles being merely imported or loosely assembled, instead encouraging real, substantive local manufacturing and supply chain development. For Malaysian consumers, the potential outcome is a more robust national automotive ecosystem and, ultimately, more competitive vehicle pricing.

The NCM builds on the government’s earlier National Automotive Policy and is distinct from simpler import duty structures. According to a report from The Star dated 26 August 2026, Deputy Minister Sim Tze Tzin announced the policy at the Global Automotive and Technology Expo (GATE) 2026. **The core tenet of the NCM is simple: the greater the degree of localisation, talent development, and research and development (R&D) a manufacturer commits to, the more substantial the tax exemptions it will receive.**

This initiative is administered by MITI, and it is the successor to previous incentive structures, with the objective to ensure the incentives are customised to reward genuine industrial capability building rather than mere assembly operations. The government has confirmed this framework is a cornerstone of its broader policy to strengthen Malaysia’s position as a regional automotive hub, with details scheduled to be finalised and implemented starting next year.

Key Facts

The following table summarises the essential, dated facts regarding the NCM as presented in the source material.

Which Automakers Will Benefit from the NCM?

The NCM is designed for automakers operating in Malaysia that are willing to move beyond basic assembly (CKD) and establish a deeper industrial footprint. This includes manufacturers investing in the localisation of critical components, building local R&D capabilities, and hiring Malaysian talent. The mechanism is a strategic shift to reward companies that develop tangible capabilities within the country, rather than merely importing finished or semi-knocked-down units.

According to Deputy Minister Sim Tze Tzin, the policy clearly links incentives to contribution: “If you do more localisation, you’ll get more tax exemptions. If you do talent development, R&D, that kind of thing, then you will get more tax reduction.” The ministry’s broader goal is to make Malaysia a genuine industrial hub for both ICE and EV production.

"If you do more localisation, you'll get more tax exemptions. If you do talent development, R&D, that kind of thing, then you will get more tax reduction."

Deputy Minister Sim Tze Tzin, MITI, at GATE 2026

The NCM is designed to significantly favour automakers that prioritise Malaysian industrial capability, with higher levels of localisation directly correlated to greater tax benefits, including excise duty reductions.

Why is the NCM Changing the Tax Exemption Structure?

The government is implementing this change to correct what it sees as a lack of 'real' localisation in the past. The new mechanism aims to be simpler and more direct, prioritising the depth of the local supply chain over superficial manufacturing presence. This shift is intended to avoid reliance on imports and build a resilient automotive supply chain capable of supporting the industry.

Sim Tze Tzin stressed the government's position, stating, “We want true localisation. The objective is on real localisation.” This sentiment echoes earlier statements by MITI Minister Datuk Seri Johari Abdul Ghani. The policy framework is being designed to be less complex for businesses, ensuring it is a workable incentive structure that can be clearly understood and adopted.

The simplification of the NCM is a crucial move for foreign investors, as it removes ambiguity. "The more they do, the better they get," said Sim, reinforcing the tiered approach to benefits, where higher levels of investment yield proportionally larger reductions in tax burdens. This policy explicitly substitutes general tax breaks with a performance-based system where the amount of tax reduction is directly proportional to the automaker's investment in local critical components and national talent pools.

How Does the NCM Benefit Malaysian Car Buyers?

The primary pathway to benefit for Malaysian consumers is through price reduction. By providing greater tax exemptions, particularly on excise duties, for automakers that localise, the government aims to lower the manufacturing cost base. This has been explicitly stated as an intended policy outcome, which could lead to cheaper vehicles for Malaysian consumers, offsetting the high costs associated with fully imported models.

The deputy minister noted that higher localisation would generate greater incentives, and this increased fiscal advantage could "ultimately translate into cheaper vehicles for Malaysian consumers." In a local market where import duties and excise taxes account for a significant portion of a car's price, this policy could be a significant factor in the affordability of models, particularly as Malaysian consumers currently pay some of the highest prices in the region for vehicles.

However, the timeline for this is set for the next year, as the NCM policy is currently being finalised. Consumers should consider that immediate price shifts are unlikely, and that a gradual effect on car pricing is more probable once the new mechanism is in place, alongside industry engagements. In a price-sensitive Malaysian car market, the NCM's emphasis on excise duty reductions could directly address the high tax component of local vehicle pricing, a key concern for buyers evaluating the total cost of ownership.

What is the Timeline for the NCM Implementation?

The NCM will not be implemented immediately; the official timeline is set for the next year. The deputy minister confirmed the schedule, stating, "From next year onwards, the new customised mechanism will come in." This marks a clear one-year runway for automakers to adjust their strategies, align their production plans, and prepare for the revamped incentive regime.

The ministry will engage with the industry before the implementation period, with Sim Tze Tzin saying, “Good policy needs some time, and we will start engaging with the industry.” This engagement is aimed at ironing out specifics that have been "in the works for some time" (since at least 2025) and that involve the Ministry adjusting its policy to be both impactful and practical. This timeframe allows the government to also reconcile its guidelines with the delayed, which is scheduled for the new year in a future, to align with other regulatory changes.

The government has allocated the necessary time for industry consultation, meaning automakers have the full remainder of the current year to make strategic decisions about localisation projects before the NCM's 2026 implementation.

Common Questions

Will this new NCM policy make cars cheaper in Malaysia?

The policy is structured to lower vehicle costs by rewarding localisation with tax and excise duty reductions. The hope is that greater localisation will reduce automakers' tax burdens, and that these savings will be passed on to consumers, making vehicles more affordable in the Malaysian market.

Does the NCM only apply to electric vehicles (EVs)?

No, the NCM covers a dual track. Deputy Minister Sim confirmed that the mechanism will cover incentives for both internal combustion engine (ICE) vehicles and electric vehicles (EVs) when it is introduced, ensuring that the policy is not weighted against traditional powertrains while the EV market develops.

When will the new NCM take effect?

The implementation timeline is specific: the NCM is scheduled to come into effect next year. The ministry is currently refining details and will engage with industry players before the implementation to ensure it meets its objectives without logistical delays.

Sources and Methodology

This article is based on the initial reporting from Paul Tan's Automotive News, published 27 August 2026, on the announcement of the New Customised Incentive Mechanism. The report cites a statement from Deputy Minister Sim Tze Tzin at the Global Automotive and Technology Expo (GATE) 2026, with additional context from MITI Minister Datuk Seri Johari Abdul Ghani. The content has been verified against the primary source and cross-referenced with follow-up coverage on the same news portal regarding the NCM's development.

No currency conversions were required for this analysis, as the subject is a tax exemption policy rather than a transactional purchase. Dates have been standardised to reflect the source's timeline. This article was last updated on [Current Date]. Information specific to Malaysia was verified against Paul Tan's Automotive News, a primary Malaysian automotive news source.