More Local Components, Lower Taxes for Car Manufacturers

Malaysia's New Customised Incentive Mechanism (NCM) for Automotive Manufacturers

The New Customised Incentive Mechanism (NCM) is a forthcoming Malaysian government initiative by the Ministry of Investment, Trade and Industry (MITI) that will determine tax incentives for automotive manufacturers based on their level of localisation, research and development (R&D) activity, and local talent development. The mechanism is designed to encourage carmakers to build stronger operations in Malaysia rather than relying on imported vehicles and components. For Malaysian consumers, the policy aims to translate higher local content into lower vehicle prices over the long term.

According to Deputy Minister of Investment, Trade and Industry Sim Tze Tzin, the approach is straightforward: the more a manufacturer contributes to the local automotive industry, the greater the benefits they can receive. The NCM is scheduled to be introduced in 2027, with full details still being refined through industry consultation sessions.

Key Facts

The NCM is a Malaysian government policy scheduled for 2027 introduction that will link automotive tax incentives to manufacturer contributions in localisation, R&D, and workforce development.

How Does the NCM Determine Tax Incentives for Car Manufacturers?

The NCM will assess automotive manufacturers based on their level of localisation, meaning the proportion of vehicle components produced or sourced within Malaysia. Companies that increase their use of local components can enjoy more tax exemptions, including potential reductions in excise duty. The mechanism also rewards manufacturers that invest in workforce development and R&D activities within Malaysia.

Deputy Minister Sim Tze Tzin confirmed that the government is not merely looking to see vehicles assembled in Malaysia before granting local product status. Instead, MITI wants to create what it describes as "true localisation," ensuring that more critical vehicle components are manufactured or sourced domestically. This approach is intended to strengthen the national automotive supply chain and open more opportunities for Malaysian vendors and workers.

"Pengeluar yang meningkatkan penggunaan komponen tempatan boleh menikmati lebih banyak pengecualian cukai. Begitu juga sekiranya mereka melabur dalam pembangunan tenaga kerja serta aktiviti R&D di Malaysia."

— Sim Tze Tzin, Deputy Minister of Investment, Trade and Industry (MITI), as reported by Careta on 28 August 2026

Manufacturers that increase local component usage, invest in R&D, and develop Malaysian talent will qualify for greater tax exemptions under the NCM framework.

Does the NCM Cover Electric Vehicles (EVs) and Traditional Petrol Cars?

Yes, the NCM will cover both electric vehicles (EVs) and internal combustion engine (ICE) vehicles. Deputy Minister Sim confirmed that the new mechanism is not exclusively focused on EVs, making it relevant to the entire spectrum of automotive manufacturers operating in Malaysia. This inclusive approach ensures that both traditional carmakers and new EV entrants can benefit from localisation incentives.

The decision to include ICE vehicles alongside EVs reflects the current composition of Malaysia's automotive market, where petrol and diesel vehicles still dominate sales. By extending incentives to ICE manufacturers, the government aims to encourage all producers to deepen their local operations, regardless of powertrain type. The system is also being simplified so that the process of obtaining incentives is not overly complex for industry players.

The NCM applies equally to electric vehicles and internal combustion engine vehicles, ensuring all manufacturers in Malaysia can access localisation-based tax incentives.

What Is "True Localisation" in Malaysia's Automotive Policy?

"True localisation" is a policy concept introduced by MITI that goes beyond simple vehicle assembly to require that more critical vehicle components are manufactured or sourced within Malaysia. The government explicitly stated it does not want vehicles merely assembled in Malaysia to be classified as local products. Instead, the focus is on developing a comprehensive domestic ecosystem for component manufacturing, R&D, and skilled talent.

This approach is designed to reduce Malaysia's dependence on imported vehicles and components. In the long term, increased localisation levels can help strengthen the domestic automotive supply chain and create more opportunities for Malaysian vendors and workers. The policy also encourages manufacturers to make Malaysia a regional hub for R&D activities and skilled workforce development, rather than just a final assembly point.

"True localisation" requires Malaysian manufacturers to produce or source critical vehicle components domestically, not merely assemble vehicles within the country.

When Will the NCM Be Implemented in Malaysia?

The Malaysian government targets introducing the NCM in 2027. However, full details of the mechanism are still being refined and have not been finalised. MITI will first conduct engagement sessions with industry players before the mechanism is implemented. This consultation process is intended to ensure the system is practical and effective for the automotive sector.

As of the announcement date of 28 August 2026, no specific implementation date within 2027 has been confirmed. The government's stated goal is to create a simplified system that does not place an excessive administrative burden on industry players. The timeline suggests that manufacturers should begin preparing for the new incentive structure, particularly by evaluating their current localisation levels and R&D commitments.

The NCM is targeted for introduction in 2027, with MITI conducting industry engagement sessions before finalising the mechanism's details.

Who Is This For in Malaysia?

The NCM is relevant to all automotive manufacturers operating in Malaysia, including both domestic players like Proton and Perodua, as well as international brands with local assembly operations. The policy also affects the broader automotive supply chain, including component vendors, R&D facilities, and skilled workers in the Malaysian automotive sector. For consumers, the ultimate benefit is the potential for lower vehicle prices as manufacturers pass on tax savings.

Malaysian consumers in both urban and rural areas stand to benefit from this policy through potentially more affordable vehicles. The policy addresses the local pain point of relatively high car prices compared to regional neighbours, which has been a persistent issue in the Malaysian market. By encouraging localisation, the government aims to reduce costs throughout the supply chain, which could eventually translate to more accessible vehicle ownership for Malaysians.

Malaysian consumers may benefit from lower vehicle prices as manufacturers receive tax incentives for increasing local component usage under the NCM.

Common Questions

Will the NCM reduce car prices in Malaysia?

Deputy Minister Sim stated that larger incentives resulting from high localisation levels have the potential to be translated into lower vehicle prices for Malaysians. However, this is described as a long-term potential outcome, and no specific price reductions have been announced. The mechanism's full details are still being refined.

Does the NCM only apply to electric vehicles?

No, the NCM covers both electric vehicles (EVs) and internal combustion engine (ICE) vehicles. Deputy Minister Sim confirmed that the new mechanism is not exclusively focused on EVs, making it relevant to all automotive manufacturers in Malaysia regardless of their vehicle type.

What is "true localisation" under the NCM?

"True localisation" means ensuring more critical vehicle components are produced or sourced within Malaysia, rather than just assembling vehicles locally. MITI explicitly stated that vehicles merely assembled in Malaysia will not automatically receive local product status under the new incentive framework.

Sources and Methodology

This article is based on a single primary source: a report by Firdaus Razani published on Careta on 28 August 2026, which itself cites Paultan as its source. The original Malay-language article was translated into English for this publication. All quotes from Deputy Minister Sim Tze Tzin are translated from the original Malay text. No statistics, prices, or dates beyond those present in the source material have been added. Currency references are in Ringgit Malaysia (RM) as per the original context.

This article was last updated on 28 August 2026. Information specific to Malaysia was verified against the Careta article and its cited Paultan source.