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Political factors play an important role and have a direct impact on the profitability of the automotive industry. In addition, import rules and taxes vary from country to country. Changing government systems and political regulation of the market may cause favourable or unfavourable fluctuation from time to time (Pratap, 2016). Therefore, government policies have largely affected the fortunes of auto companies.
The existence of AFTA otherwise ASEAN Free Trade Area is one of the important issues to be considered. Presently, the majority of ASEAN territory are free trade otherwise 96% of the entire ASEAN trade. In January 1992, AFTA was established with the aim of eliminating tariff barriers amongst the Southeast Asian countries. In order to develop the national capabilities of the automotive industry in a sustainable but competitive manner, the Malaysian government provides protect that allows local automakers to withstand some of the early environment downturns (Essays, 2013). In Malaysia, there is no import tariff on cars from ASEAN countries, and a 30% import tariff on cars from non-ASEAN countries. Car prices are further escalated due to tax rates and excise taxes imposed. According to the Malaysian Automobile Association (MAA), in addition to the 10% sales tax, the consumption tax on cars ranges from 65% to 105% (Lee, 2013).
The Malaysian government has also taken several measures in order to protect their local automotive industry, including high tariffs, licensing systems and import quotas, such as Approval Permits on imported vehicles. Approved Permits is a mechanism to control imported cars, it was under the Malaysian Customs Act 1967, meant to protect the National Car (MITI, 2018). This policy makes many foreign automakers disappointed, but the government claimed they have the right to implement policies in order to protect local automakers. According to this policy, people need to obtain an approved license to import cars. In addition, import duties between 140% and 300% will be charged for purchasing a foreign-made car (Leow & Husin, 2015)
In view of the global challenges and competitive in the automotive industry, the Malaysian government considers it necessary to review the strategic direction and policy framework of the domestic automotive industry. This shift to lower regulatory policies is critical to maintaining the competitiveness of the domestic and international automobile industry and making it viable in the long run. Therefore, the government launched the National Automotive Policy (NAP) in March 2006 with the main purpose of gradually achieving market liberalization. In 2014, the NAP was revised to expand its current implementation to cover other aspects of commercial vehicles and mobility. This policy ensures long-term sustainability of the domestic automotive industry and provides a safety, comfort and environment-friendly features in the vehicles (Bernama, 2017).
However, most consumers are dissatisfied with the excessive taxation of Malaysian cars, and the government is generally affected by the above anger. Most Malaysians are more prefer the quality and comfortable of a foreign brand car. Despite the frequent complaints about the excessively-priced vehicles, consumers are remarkably generous spenders in their car purchases (Augustin, 2013).