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Last week, the possibility of cheaper cars thanks to trade pacts Malaysia is participating in, like the Trans-Pacific Partnership Agreement (TPPA) and other free trade agreements (FTAs), was mentioned by International Trade and Industry Minister II Datuk Seri Ong Ka Chuan. The Malaysia Automotive Institute (MAI) was on the same page, estimating a 20% to 22% price reduction by 2018.

The Malaysian Automotive Association (MAA), the umbrella body that represents carmakers in Malaysia, took an opposing view, saying that car prices will go up next year due to unfavourable foreign exchange. Indeed, car companies have already announced prices hikes (or the possibility of prices going up) effective next year – Toyota/Lexus started the ball rolling, followed by Honda, Nissan and Mitsubishi.

Today, a report in The Sun says that cheaper car prices may not happen, due to various local reasons.

An industry analyst quoted by the daily said there is every possibility that the government will still enforce excise duty and car companies charge into-showroom cost despite the import duty reduction from various free trade agreements, including the Asean Economic Community and the Asean Free Trade Agreement with Japan and Australia that will come into effect next year.

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“The 12-year period will begin from 2018 if any TPPA signatories rectify the agreement within 24 months, starting from December. From there on, there will be continuous import duty reduction of 2.5% a year until 2030,” a source told the publication’s business desk.

“Malaysia largely import cars from Japan, Korea and within the Asean region. So the impact of TPPA on non-Asean cars is unknown. If we look at the current scenario, we are already enjoying zero tax import duty for cars originating from within Asean but do we see significant price reduction in the local markets?” the analyst said.

At present, import duties range from 10% to 30% for CBU vehicles, but it is not the only and biggest factor in coming up with a car’s retail price, which takes into account the vehicle’s ex-factory price, sales tax, excise duty and profit margin of the local distributor.

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Excise duties range from 65% to 105%, but some companies enjoy a 40% to 50% rate thanks to high localisation. “Will the government lower, maintain or increase the excise duty by 2018? That’s government prerogative for domestic tax,” the analyst said.

Pertinent question. Oil prices are depressed, which translates to lower revenue at Petronas and the reduction of the oil company’s contribution to the government’s coffers. To make up for that, and to make good its commitment to reduce budget deficit, the government has introduced a subsidy rationalisation programme and the Goods and Services Tax (GST). Looking at this trend, it’s not likely that the government will forgo income from vehicle sales, but we’re happy to be wrong on this.

The report’s source also raised another factor that often escapes scrutiny by the buying public – the car companies and their profit margins. “I am convinced that the car dealers would still want to maintain or increase the profit margin even though the various trade agreements will provide lower tariffs and bigger access to larger markets,” he said.

One shouldn’t get his/her hopes for cheaper cars too high, although it’ll take more than a minister’s statement or two to convince the skeptical Malaysian consumer.