This time around, the rejigged opposition’s election manifesto for the upcoming 14th General Election (GE14) did not trumpet lower car prices if it came into power so loudly, unlike in the previous GE, when “Turunkan Harga Kereta” was part of a turun everything campaign. However, dig in and you’ll find that Pakatan Harapan intends to cut excise duties on imported cars below 1.6 litres for first-time buyers. PAS, now divorced from PKR and DAP, has made a somewhat similar pledge.
The Islamic party has unveiled a manifesto for its Gagasan Sejahtera platform, which includes Parti Ikatan Bangsa Malaysia (Ikatan) and Barisan Jemaah Islamiah Se-Malaysia (Berjasa). The manifesto includes the expected promise of abolishing the goods and services tax (GST), but it also threw in something car related – exempting excise tax for first-time car buyers.
The proposal by PAS is to exempt excise tax for first-time car buyers, applicable to vehicles with engine capacities below 1.3 litres. The party also proposes an interest-free loan for the first-timers. Of course, nothing is mentioned on how a potential government can replace the shortfall of income from this stream.
It is an important stream. In 2014, minister of international trade and industry Datuk Seri Mustapa Mohamed said that the government cannot give up excise duties under its (then) current fiscal position. “The auto sector is a very important contributor to the government’s coffers – 75% of the duties collected from the auto sector comes from excise duties,” he said at the 2014 National Automotive Policy announcement.
“On excise duties, the position of the government is as follows. Given the current situation of the budget, it is not possible for the government to review excise duties, but the government, of course, in the next few years, will review the fiscal situation. And as the fiscal situation improves, the government will consider looking into the possibility of gradually reducing excise duties,” he added.
We pay three different kinds of tax on our cars – import duty, excise duty and GST. Import duty is on a downward trend as Malaysia is part of many trade pacts and bilateral agreements – the rate is already 0% for cars coming in from ASEAN countries, for instance. However, excise duties are the prerogative of the government, and as the MITI minister mentioned, it’s a valuable source of income.
Unlike import tax, excise duty is levied on all products, whether imported, manufactured locally or national. Rates range from 65% to 105%, but many car manufacturers pay less than that in exchange for a higher rate of localisation. According to Mustapa, the average excise duty being paid per car is about 50% (2014 figures).
The PAS promise is nothing new. In 2014, minister for youth and sports Khairy Jamaluddin’s proposed a “Youth First Vehicle Scheme” where young people earning under RM4,000 a month can buy their first car tax-free. We calculated – based on a 10% downpayment, 3.5% loan interest rate and a seven-year tenure – and found that one could save from RM30 to RM330 per month for locally-made cars ranging from a Perodua Axia to a Toyota Vios. More on this, here.
But are cheaper cars truly beneficial for the rakyat? Should the plan to scrap excise tax come to fruition, manufacturers and buyers will be rubbing their hands in glee, and the sluggish market might receive a temporary boost. But things might not be so rosy in the longer term. With every high, there’s a hangover, and Thailand has already experienced the cycle.
The Thai auto 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.
It was reported that the good intentions of the then Thai government cost it US$2.5 billion (RM9.79 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.
At the proposal stage, cheaper cars are meant to help out the young, but in Thailand, it left many youngsters trapped in debt. The situation would probably be the same or worse should a similar scheme be introduced here.
Malaysian household debt levels are already among the highest in the region (84.6% of GDP as of September 2017; it was RM1.086 trillion or 88.4% of GDP at end 2016) and giving fresh grads an “extra excuse” to buy a new car may be bad for their long term financial health. With up to RM1,000 per month less in savings, that elusive 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 an “upgrade” – for instance, if the original budget allowed for a Perodua Myvi, the first-time buyer might now go for a Honda Jazz, for the “same price”. And we haven’t even mentioned the impact on urban congestion.
Anyway, are cars really as expensive in Malaysia as we think? As shared with BFM earlier this month, RM60k buys you the base Yaris J Eco in Thailand. The Myvi-sized hatch is powered by a 1.2 litre engine, rolls on steel wheels and doesn’t have a radio. Contrast that with the RM55k Myvi 1.5 Advance, with its LED headlamps, keyless entry and autonomous emergency braking.
On the other end of the scale, the BMW 530e plug-in hybrid, launched here in January at RM344k, retails from RM457k in the Land of Smiles. The PHEV G30 benefits from CKD hybrid incentives in both countries. Those doing direct conversions from countries such as the UK and Australia might also want to consider the cost of insurance, fuel and inspection there, among other costs. What’s your opinion on car prices in Malaysia?
