New Energy Vehicle Subsidy Policy

The New Energy Vehicle (NEV) Subsidy Policy refers to a suite of fiscal support measures rolled out by the government to drive the adoption and ownership of new energy vehicles. As the NEV industry matures, incentives are shifting from broad blanket support to targeted structural guidance. The year 2026 represents a major turning point in the trade-in subsidy mechanism, whilst vehicle purchase tax exemptions enter their final 50% reduction phase.

2026 Vehicle Trade-In Subsidy Scheme

Jointly announced by eight government bodies, including the Ministry of Commerce, the 2026 vehicle trade-in incentive came into effect on 1 January 2026. Departing from the fixed-amount rebates of 2025, the 2026 scheme calculates subsidies as a percentage of the new vehicle’s retail price, achieving both broad market coverage and targeted structural steering.

Scrappage and Replacement Subsidy: Individual buyers who scrap qualifying older vehicles (petrol vehicles registered before 30 June 2013, diesel vehicles registered before 30 June 2015, or NEVs registered before 31 December 2019) and purchase an eligible NEV passenger car listed in the official tax exemption catalogue will receive a subsidy of 12% off the new vehicle's retail price, capped at RM20,000. For those replacing an end-of-life vehicle with an internal combustion engine (ICE) model displacing 2.0 litres or below, the rebate is set at 10%, capped at RM15,000.

Trade-In Replacement Subsidy: Individual buyers who dispose of their existing vehicles via sale to purchase a new NEV passenger car are eligible for an 8% subsidy on the new car's retail price, up to a maximum of RM15,000; for trade-ins towards new ICE models, the incentive is 6%, capped at RM13,000.

Each individual car buyer is limited to claiming either one scrappage subsidy or one trade-in rebate throughout the policy period. Trade-in vehicles must have been registered under the applicant’s name prior to 8 January 2025. Eligible applications are generally audited within 15 working days, with subsidy disbursements completed within 30 working days.

Revisions to Vehicle Purchase Tax Incentives

Purchase tax exemptions for NEVs are being phased out in a structured, tiered manner. Following a full tax waiver from 2024 to 2025, 2026 marks the entry into a 50% tax reduction phase (5% effective tax rate), with tax relief capped at RM15,000. From 2027 onwards, the exemption will be entirely rescinded, reverting to the standard 10% full tax rate applied to conventional ICE vehicles.

Taking a popular family SUV with a pre-tax retail price of RM200,000 as a benchmark, buyers in 2026 will pay around RM8,850 in purchase tax, whereas in 2027 they will have to pay the full RM17,700—an increase of nearly RM9,000 per vehicle. This impending tax hike makes the second half of 2026 the most lucrative window for car buyers over the past two years, prompting NEV showrooms nationwide to offer package deals with combined savings of 8% to 12%.

Market Impact and Industry Response

As of 28 December 2025, the 2025 vehicle trade-in volume exceeded 11.5 million units, generating over RM1,600,000,000,000 in new vehicle sales and accounting for more than half of the domestic passenger car retail market.

In July 2026, the retail market penetration of NEV passenger cars reached 63.1%. Complementing national subsidies, carmakers have lowered ownership barriers through promotional packages, deposit boost deals, trade-in bonuses, and low-interest hire purchase plans. These layered promotional campaigns, paired with aggressive new model rollouts, continue to stimulate strong automotive consumer demand.

To crack down on illicit activities such as subsidy fraud and deceptive claims, regulatory authorities have maintained a zero-tolerance stance, putting in place an inter-agency supervisory framework that unites commerce, finance, police, taxation, and market regulation departments.