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Malaysia rules out cut to tax on new cars

KUALA LUMPUR, Malaysia (AP) -- A Malaysian minister Monday ruled out slashing auto taxes that keep car prices high because it will hurt efforts to cut the country's budget deficit.

Trade Minister Mustapa Mohamed said the government cannot "sacrifice" the 7 billion ringgit ($2.17 billion) it earns each year from an auto excise tax as it would jeopardize the country's finances.

"Our budget is in a deficit. If we sacrifice 7 billion ringgit, where are we going to find it? At this point of time, it is not something that the government is considering," he told reporters.

The government has run a budget deficit since 1998. Last year's deficit of 4.5 percent of gross domestic product was one of the region's largest.

Malaysia, the second top passenger car market in Southeast Asia after Thailand, imposes excise of between 65 and 105 percent on every new vehicle, as well as a 10 percent sales tax.

Mustapa said some manufacturers are already paying excise of around 50 percent or less as they get rebates for using high local content in their cars.

He said the ruling coalition, which won power in May 5 national polls, is committed to its election promise to bring car prices down by up to 30 percent over the next five years.

He said Malaysia's free trade agreement with Japan that was implemented last year as well as other pacts it is negotiating will cut import duties and help lower car prices in phases.

Measures are being taken to further develop the local auto industry, which will lead to more intense competition that will also keep car prices in check, he said. While car prices in Malaysia are higher than in neighboring countries, other officials said that the cost is offset by lower road tax and subsidized fuel prices.

Malaysia has lost out as a regional auto hub to Thailand, which has liberalized its industry at a faster pace. Still, new auto sales in Malaysia rose 4.6 percent last year to nearly 628,000 vehicles.