Gov’t denies up to 30% price hike for CKD cars, bikes in 2026 – OMV/402 excise revision still being reviewed

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The government has responded to the open market value (OMV) excise duty revision quandary that has the local car and motorcycle industry up in arms. The finance ministry (MoF), together with the ministry of investment, trade and industry (MITI), said that reports of CKD locally assembled car/bike prices going up by up to 30% in 2026 are inaccurate.

On the annual deferment of implementation of excise tax regulations under PU(A) 402/2019-Excise Tax Regulations (Determination of Value of Locally Produced Goods for Excise Tax Purposes (latest round pushes it to January 2026), MoF says that it is reviewing the vehicle valuation method for it to be fair, neutral and consistent.

“There has yet to be a final decision. MoF, together with MITI and the automotive industry, is currently reviewing the vehicle valuation method to ensure that the imposition of tax is carried out in a fair, neutral and consistent manner,” it said in a brief statement yesterday.

MAA president Mohd Shamsor Mohd Zain

When disclosing that the auto industry secured a one-year deferment last month, Malaysian Automotive Association (MAA) president Mohd Shamsor Mohd Zain said that the effect of OMV/402 will be an average price increase of between 10% to 30% for CKD cars, which would lead to lower sales and volume, affecting carmakers and suppliers negatively.

“We are very concerned. Based on our understanding right now the 402 will be implemented by January 2026. If that really happens, there will be an average price increase of between 10% to 30% for CKD cars,” he said.

“If that (OMV revision) happens, there will be a lot of spiral down effects for the future years, in terms of lower sales, lower volume, especially for CKDs. It will also have an impact on our local industry, especially our suppliers. There’s a lot of after effects that we’re concerned about,” Mohd Shamsor added.

The Malaysia Automotive Component Parts Manufacturers (MACPMA) weighed in, with its president Chin Jit Sin telling paultan.org that the auto industry contributes to more than 4% of Malaysia GDP and provides employment to over 200,000 people. Lower volume could cause plant closures and job losses.

“Motor vehicle manufacturers will stop making new investments immediately to produce new models of motor vehicles in Malaysia, and just bring in CBUs from other ASEAN or RCEP countries, since there is less difference in the cost of CBU versus CKD vehicles,” he said.

It’s not just cars that will be affected. Hoo Wan Tim, president of Motorcycle and Scooter Assemblers and Distributors Association of Malaysia (MASAAM), told paultan.org that prices for CKD bikes would go up by up to 20%, impacting Malaysians in the B40 and M40 income brackets.

“MASAAM would also like for the government to relook into the OMV/402 situation to avoid a significant cost impact to the livelihoods of consumers. Especially so that when it comes to motorcycles, our consumers are mostly in the B40 and M40 groups that will be even more severely impacted. For those in the need of basic transportation, including those in the gig economy (delivery riders), that will be a massive increase,” he said.

It’s a view shared by the Malaysian Motorcycle and Scooter Dealers Association (MMSDA), who said that dealers would have to pass down the price hike to buyers. He told us that the impact would affect smaller capacity locally assembled motorcycles the most. “Most buyers of kapcai or motorcycles below 150 cc belong to the B40 income group, who rely on these motorcycles as their main means of livelihood. A price increase would undoubtedly add to their financial burden,” he said.

Here’s an explanation of the bullet we just dodged, and how we got here. The controversial ‘402’ – gazetted on the last day of 2019 – stipulated a new methodology of calculating a CKD vehicle’s 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.

The PH-era regulations set 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 that pandemic year, MAA announced that the finance ministry had deferred implementation to 2021. 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. The latest deferment is until December 31, 2025.

While carmakers and consumers can breathe a sigh of relief for now, this uncertainty isn’t good for a company’s planning, forecasting and operations. Without clarity, investments will also be hampered – no one wants to invest in local production and ‘live on the edge’ every December hoping for the best. No exaggeration here – the second deferment was announced just two days before 2021 ended!

If prices of CKD cars do go up by as much as 30%, perhaps OEMs will not bother with the hassle of local production and just bring in CBU imports – this would be a loss for the industry and country. Yes, the government would collect more taxes with the revised OMV in the short term, but if higher prices damage sales volume (all-time high in 2024, we have momentum), production and eventually job opportunities for the rakyat, it could be an example of being penny-wise but pound-foolish.

Perhaps the subsequent administrations after Pakatan Harapan do see the logic behind the auto industry’s argument, hence the constant stays of execution, but kicking the can down the road via annual deferments surely isn’t the way to go.

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