The government has yet to reach an agreement with regards to the restructuring of excise duties, but car prices will not increase drastically, as much as 15-25% as reported, according to finance minister Lim Guan Eng.

UPDATE: The story and headline has been amended following clarification from Lim Guan Eng’s office.

Lim said that changes, if any, will be gradual “Should there be any changes, it must be made gradually and not abruptly. We are holding discussions regarding the matter to ensure transparency (in terms of reporting) so that we can continue to meet our obligations to the World Trade Organisation (WTO),” he was quoted as saying in a Bernama report.

Speaking to to reporters after the launching the Budget 2020: Government Guarantee Schemes for SMEs by Syarikat Jaminan Pembiayaan Perniagaan Bhd (SJPP) event in KL today, he urged the public to wait for an official announcement from the government instead of taking market speculation as the final say.

According to the Excise (Determination of Value of Locally Manufactured Goods for the Purpose of Levying Excise Duty) Regulations 2019 – prepared by the MoF and gazetted on December 31, 2019 – CKD locally-assembled vehicles could attract more excise duty because of the methodology of how the open market value (OMV) of a vehicle is calculated.

The OMV is the final market value of a CKD vehicle ex-factory, before the government imposes excise duties on it. An assortment of components determine the OMV, and these include the cost of the CKD pack, cost of manufacturing and components as well as assembly and administration charges.

The gazette adds new components into the OMV calculation. Under the new regulations, the computed value to determine duties will now take into account not just the profit and general expenses incurred or accounted in the manufacture of a vehicle (ex-factory), but also of its sale.

According to a source familiar with the matter, the “and sale” clause also now applies to areas such as engineering, development work, art work, design work, plan and sketch, royalty payments and license fees (patent, trademark, copyright), raising OMV and applicable excise duty.

The gazette isn’t explicit though, and it depends on interpretation. As this is a developing story, we’ll attempt to get feedback from the Malaysian Automotive Association (MAA), the umbrella body representing car companies. Earlier today, Perodua president and CEO Datuk Zainal Abidin Ahmad said that this new ruling comes as a surprise to Malaysia’s auto market leader.

“We have very frequent engagements with the government, particularly on items in relation to the development of the local automotive industry. But specifically for excise duties, no, we were not consulted. That’s why we are in discussions with some of the members of MAA to try to evaluate what is the impact of this,” he said.