Carmakers hailed yesterday's Cabinet decision to slash excise tax for small cars from 30 per cent to 17 per cent, saying the move will boost the production of fuel-efficient cars in Thailand.

Asian Honda Motor's senior vice president Adisak Rohitasun said the decision confirmed the government's dedication to promoting fuel-saving cars, with the excise tax now low enough to make the eco-car project materialise.

"Considering the tax rate, this project will be kick-started, sooner or later," he said. "Now we are waiting for the promotion criteria from the Board of Investment and the Industry Ministry."

Thai Automotive Institute director Wallop Tiasiri said that if the rate had been higher, the project would definitely not take shape. Now carmakers are waiting for other incentives from the Board of Investment.

"At this rate, I believe that only a few companies which are really active in the car market would invest in the project," Wallop noted.

Board of Investment secretary-general Satit Chanjavanakul told Reuters yesterday that the board would meet next week to finalise the privileges for the eco-car project.

"We are discussing additional incentives to encourage the investment. A waiver on corporate tax income could be a part of it," he said.

Surapong Paisitpatnapong, a spokesman for the Federation of Thai Industries' Automotive Industry Club, said the 17-per-cent tax rate should boost investment.

"However, Thai people are not in favour of small cars. Carmakers may need to focus on exports rather than the domestic market," he said.

The eco-car project is expected to bring in tens of billions in new investment. Six Japanese auto companies, including Toyota, Nissan, Honda and Mitsubishi, have shown interest in joining the scheme. Officials who asked not to be named said Honda, Mitsubishi and Suzuki were expected to apply for Board of Investment incentives to make eco-cars.

The Cabinet's decision to cut the excise tax rate on small cars followed a Finance Ministry recommendation. Finance Minister Chalongphob Sussangkarn said the new tax rate would come into force in October, 2009. The ministry doesn't want the new rate applied right away because it will only benefit imported units.

An industry source said that at the new rate, small cars may be sold for less than Bt500,000.

"We hope that eco-cars may become a new product champion. Those who used to buy motorbikes will be able to buy these small cars," Chalongphob said.

The eco-cars must have engine capacities of not more than 1,300cc for petrol-driven models and not more than 1,400cc for diesels. The cars must consume no more than one litre of fuel per 20 kilometres, he said.

Although there are existing cars capable of achieving lower fuel consumption, they do not measure up to new environmental standards, the finance minister said.

To be recognised as an eco-car, vehicles must meet Euro 4 pollution standards, which stipulate that carbon dioxide emissions must not exceed 120 grammes per kilometre. They must also meet safety standards required by the United Nations Economic Commission for Europe for frontal and lateral collisions.

Chalongphob said rapidly changing technology would enable manufacturers to come up with new engines that meet the government's requirements.

  The ministry is also restructuring excise tax rates for cars modified to use alternative fuels such as petrol-ethanol blends with no less than 20 per cent ethanol in order to promote alternative energy. These will be enforced in January next year, Chalongphob said.

Chalida     Ekvitthayavechnukul

Wichit Chaitrong

The Nation