Budget 2026: Key takeaways for the automotive industry

Budget 2026 has been announced with the theme “Memacu Ekonomi MADANI: Memperkasa Rakyat” (Driving the MADANI Economy: Empowering the People), focusing on strengthening the country’s fiscal position through digitalisation and an outcome-based incentive framework.

Regarding our industry, there were several key points, including the push for sustainable mobility, the lemon law, tax exemptions for EVs, and vehicle scrapping policies. 

Let's check out the key highlights of Budget 2026 for the automotive industry - 

No extension for tax-free CBU EVs 

The import duty and excise duty exemptions announced in 2022 on fully imported (CBU) electric vehicles to promote sustainable mobility are now coming to an end. These exemptions will end on January 1, 2026, which means importing EVs from China and other countries will become subject to full duties and taxes, depending on size and battery capacity.

Continuation of CKD EV incentives till 2027

While tax exemption ended for EVs, the rebates (excise duty and sales tax exemptions) for the locally-assembled EVs will be continued till 2017. This will encourage foreign brands to establish or expand their local assembly operations, thereby strengthening Malaysia’s position as a regional EV assembly hub.

Grant for scrapping old cars

The budget also announced a matching grant of up to RM 4,000 for those who scrap their old cars (20 years or older) and purchase a new national car (Proton or Perodua). The said grant will be shared between the automaker and the government and mark the first major step towards implementing an End-of-Life Vehicle (ELV) policy in Malaysia.

Lemon Law to be introduced in Malaysia

The budget also sheds light on the implementation of the “Lemon Law”  under the upcoming amendment to the Consumer Protection Act 1999. Aims to bolster consumer protection, the said law will grant consumers protection against broken or defective products, including cars, by offering various remedies, including repair, replacement, or compensation. 

The momentum for implementing the Lemon Law in Malaysia has increased due to reports of new cars from reputable brands, such as Perodua, leaving the factory with defects.

Langkawi & Labuan duty exemption cap

The government has imposed a ceiling on tax exemptions for vehicles purchased in Langkawi & Labuan, which were previously duty-free zones, allowing customers to buy luxury vehicles tax-free. From January 1, 2026, the tax exemption will apply only to vehicles priced up to RM 300,000, preventing misuse of duty-free benefits for luxury car purchases in these zones.

Support for taxi drivers and e-hailing vehicles

Prime Minister and Finance Minister, Datuk Seri Anwar Ibrahim, has also announced 100% excise duty and sales tax exemptions for taxi and private hire car drivers on the purchase of new Perodua and Proton vehicles. This will reduce the ownership costs of the vehicle, thus encouraging drivers to upgrade to newer, safer, and more fuel-efficient cars.

Funds allocated for the development of road infrastructure 

• Over RM 48 billion for highways and road infrastructure in Sabah and Sarawak, covering major projects such as the Pan Borneo Highway that spans both states. As of now, a total of 9 packages are fully completed and open to the public in the Sarawak section, and 4 packages in Fasa 1A are completed in the Sabah section.
• RM 2.5 billion has been allocated for the maintenance of federal roads, covering potholes, installation of street lamps in risky areas, as well as for the replacement of road furniture.
• Allocated RM 2.2 billion for the implementation of new and ongoing flood mitigation projects. 

And with that, we've covered the key takeaways for the auto and transport sector in Budget 2026.

Also read: Weekly wrap-up: Proton e.MAS 5 est. price revealed, Golf GTI Sepang Edition launched, Hyundai Staria CKD bookings open, and more