Here’s something that could be a real boost to the automotive industry, not to mention a crowd pleaser. According to Sin Chew Daily, the upcoming Budget 2017 may include excise duty exemption for first car buyers.

The Chinese language daily said that the scheme will be for young people within a designated age group, but will not be limited to the purchase of cars from Proton and Perodua – foreign brand vehicles that are CKD locally assembled will also be included.

The report’s unnamed sources said that the Customs department will determine the list of cars that will benefit from the scheme. The source also mentioned an engine capacity cap. However, with some luxury and performance cars now embracing downsized turbo engines, a pure “cc limit” could be breached by the likes of the BMW 318i (1.5L), Mercedes-Benz C180 (1.6L), Volkswagen Jetta (1.4L) and Peugeot 208 GTi (1.6L), among others. There will be more filters for the final list, surely.

The report adds that in concept, the scheme will level taxes for all locally assembled cars, whether from a national make or a non-national brand. At present, all CKD and CBU cars are subject to different levels of excise duty – CBU import, foreign brand CKD, national makes. The scheme will not benefit CBU imports.

Should such a scheme come to fruition, manufacturers and buyers will be rubbing their hands in glee, and the current weak market sentiment might receive a temporary boost, but experts caution that it will create market distortion. If not implemented well, it will also add to Malaysian household debt levels, which are already among the highest in the region.

Also, with every high, there’s a hangover, and a temporary boom is likely to affect future demand for cars. The Thai car market contracted severely after the country’s December 2012 expiry of a first-car scheme, which started in September 2011. The government gave a 100,000 baht tax refund for first-car buyers opting for a locally made car priced below one million baht, with an engine no bigger than 1.5 litres.


This is not the first time that we are hearing of a “first car scheme”. In late 2014, minister of youth and sports Khairy Jamaluddin proposed a “Youth First Vehicle Scheme”, where young adults earning below RM4,000 a month can buy their first (locally assembled) car tax-free.

Here, we calculate the actual savings such a scheme will bring to a first-time car buyer in terms of monthly instalments, based on the typical 10% downpayment and 3.5% interest rate, over a seven-year tenure.

We pay three different kinds of tax on our cars – import duty, excise duty and GST. The prices below are Peninsular Malaysia vs Langkawi duty-free prices for a selection of national and non-national cars (entry-level and range-topping variants shown). For Perodua, it’s Sabah/Sarawak prices vs duty-free Labuan prices as we do not have P2’s Langkawi price list.

In this best case scenario, which scraps off all three taxes (the current reported version removes just the excise duty), monthly savings add up to between RM22 to RM253. Of course, the tax savings for the CKD Hondas and Toyotas are much higher than those for Peroduas and Protons.


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So, will such a move truly benefit everyone? It was reported that the good intentions of the then Thai government cost it US$2.5 billion (RM10.48 billion) in tax income, according to World Bank estimates. It also left more than 100,000 indebted customers defaulting on their loans because they couldn’t afford to buy new cars under normal circumstances. Of course, owning a car isn’t just about the monthly instalments – there are many other costs involved such as insurance, fuel and parking, just to name a few.

The situation would probably be the same or worse should such a scheme be introduced in Malaysia. As the figures show, we generally aren’t averse to taking on more debt (household debt is RM1.03 trillion or 89.1% of GDP, and counting) and giving fresh grads an “extra excuse” to buy a new car may be bad for their long term financial health. With RM1,000 per month less in savings, that elusive and expensive first home will be even harder to achieve.

Also, lower car prices will not necessarily mean that young adults will have more money to spare. It’s likely that many will take the opportunity to use the original budget for a “bigger” and more expensive car (monthly budget now allows for a Jazz, instead of the original plan for a Myvi, for instance). What do you think? Will the mooted “first-time car buyer” scheme bring benefits to the target market?