Excise duty regs that are set to raise CKD car prices in 2021 being reviewed by new gov’t – outcome soon

Remember the big hoo-ha early this year when the customs department rolled out new excise duty regulations that would have seen prices of CKD locally assembled cars go up? Feels like ages ago, but it was in 2020.

After uproar from the auto industry, which was caught by surprise, and consumers alike, the then Pakatan Harapan government backtracked and announced a “special exemption” that essentially maintained the car price status quo for 2020. However, it was meant to be a temporary relief, and car prices are due to go up in 2021, albeit gradually.

Here’s a recap and brief explanation. Basically, the excise duty rate does not change, but what’s new is the methodology of how the open market value (OMV) of a vehicle is calculated. OMV is the final market value of a CKD car ex-factory, before the government imposes excise duties on it, with profit margin and sales tax to top things off.

Excise duty regs that are set to raise CKD car prices in 2021 being reviewed by new gov’t – outcome soon

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. However, 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 – sought to add 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.

The “and sale” clause also now applies to areas such as advertising and marketing, warranty and trade royalty, plus wages and commission. Also included are general and administrative expenses such as rental, utilities and office supplies, among other costs. Naturally, this raises the OMV and applicable excise duty.

Excise duty regs that are set to raise CKD car prices in 2021 being reviewed by new gov’t – outcome soon

Malaysian Automotive Association (MAA) president Datuk Aishah Ahmad said then that with the new tax structure, CKD car prices would have gone up by up to RM33,000, and that the association’s members – some of whom have invested heavily in assembly operations in Malaysia – would have had to rethink their plans for our market.

Despite the last minute reprieve, the move by customs (which is under the finance ministry) caused uncertainty, which affected industry players in their planning. “Automotive companies were facing headwinds at the start of 2020 with the sudden change in the OMV valuation methodology by customs in January, resulting in companies facing delays in new car launches and disruptions in selling their vehicles,” Aishah said today at the MAA’s 1H 2020 review.

It may be status quo now, but if things don’t change, we may be facing higher CKD car prices come January 2021. This excise duty-induced hike will be combined with the expiration of the sales tax exemption (100% for CKD, 50% for CBU) under the government’s Penjana programme, which is in place from now till the end of the year. It will feel like a double whammy for the consumer, even if the SST exemption expiry merely brings prices back to normal levels.

Excise duty regs that are set to raise CKD car prices in 2021 being reviewed by new gov’t – outcome soon

However, with a new government in place, MAA is trying to plead its case again. “We wrote an appeal to the government on the OMV. They said that they’re looking at it, reviewing it, to make it more acceptable to the automotive industry, and we’re waiting for the outcome,” Aishah said today in response to our question on the status of the excise duty OMV issue.

“I think it should be very soon that we will know the outcome. It’s work in progress,” she added. Here’s hoping that the carmakers succeed in their appeal and that middle ground can be found for the benefit of all parties. Fingers crossed.