OMV excise duty revisions to take effect soon – CKD car prices in Malaysia to go up by 8% to 20% in 2025?

We may see significant price increases for locally-assembled (CKD) cars in Malaysia real soon. To jog your memory, in 2019, the finance ministry under the then Pakatan Harapan government prepared the Excise (Determination of Value of Locally Manufactured Goods for the Purpose of Levying Excise Duty) Regulations 2019, which was gazetted on the last day of that year.

Said regulations stipulated a new methodology of calculating a CKD vehicle’s open market value (OMV), which influences how much tax is to be paid and therefore, its selling price. OMV is defined as the final market value of a CKD vehicle ex-factory, before the government imposes excise duties on it.

It’s primarily made up of the cost of the CKD pack, cost of manufacturing and components as well as assembly and administration charges. Note that fully-imported (CBU) vehicles use a different system – prices for these are based on Cost, Insurance and Freight (CIF), on which import and excise duties are imposed.

OMV excise duty revisions to take effect soon – CKD car prices in Malaysia to go up by 8% to 20% in 2025?

The then-new regulations set down that in calculating OMV, one must take into account not just the profit and general expenses incurred or accounted in the manufacture of a vehicle, but also of its sale.

It was this “sale” clause that got industry players up in arms, because it involved areas such as engineering, development work, art work, design work, plan and sketch, royalty payments and license fees (patent, trademark, copyright). Think of it as ‘factory costs’ plus ‘office costs’.

The regulations were supposed to come into force in 2020, but 22 days into the COVID year, the Malaysian Automotive Association (MAA) announced that the finance ministry had deferred implementation to 2021. MAA added that the new regulations could lead to CKD car prices going up by as much as 20%.

OMV excise duty revisions to take effect soon – CKD car prices in Malaysia to go up by 8% to 20% in 2025?

By end-2020 it was deferred again, and MAA appealed to the government in 2022 for continued deferment, which was successful – a two-year deferment was granted, until December 31, 2024. That’s 12 days away now, and if no official announcement of yet another deferment is made, every company that assembles cars in Malaysia must, by law, comply.

Besides the planning, forecasting and operational nightmares endured by carmakers as a result of this uncertainty, there’s the regular consumer, who may have to pay more for RON 95 petrol from mid-next year (and/or deal with the resultant price hikes of various goods and services), and pay up to 20% more for a CKD car. Indeed, analysts foresee lower vehicle sales next year due in part to the OMV revisions and targeted RON 95 petrol subsidies.

A lot can happen in 12 days, though. After all, the second deferment was announced just two days before the year ended. But let’s say the government actually follows through this time and CKD car prices really do go up by as much as 20%. One wonders – why would carmakers bother with CKD to begin with? They might as well just import cars in CBU form if the price difference becomes less and less.

Also, the government may lose much more in the long run where external investments and (perhaps more importantly) job opportunities for the rakyat are concerned, than what they would gain in the short term in additional tax collection.

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