Earlier this month, the Malaysian Automotive Association (MAA) confirmed that the industry received a big reprieve in the form of a deferment of the implementation of the Excise (Determination of Value of Locally Manufactured Goods for the Purpose of Levying Excise Duty) Regulations 2019, which expired on December 31, 2024, also known as the (OMV) or ‘402’ excise duty revision.
Without yet another deferment (one year, till December 31, 2025), the then Pakatan Harapan government’s new ruling would have pushed prices of CKD locally assembled cars up by to 30%, and that would have been disastrous to new car sales. A collapse in sales would affect local production of OEMs and their many local suppliers, and eventually impact jobs.
We’ve already heard the valid and logical concerns of MAA and Malaysia Automotive Component Parts Manufacturers (MACPMA), but did you know that the local motorcycle industry and bike buyers would also suffer from an OMV revision?
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.
“In alignment with MAA and MACPMA, 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,” Hoo told us.
“For bikes, the price increases for locally-assembled models will be between 10% to 20%. For example, if a bike is currently priced at RM10,000, with the excise duty revision, the same model will have to be sold at RM11,000 or RM12,000 next year. For those in the need of basic transportation, including those in the gig economy (delivery riders), that will be a massive increase,” he said.
The MASAAM chief pointed out that the motorcycle market is mostly CKD. “While for cars there is a wide selection of CKD and CBU models for customers to choose from, the bike industry is pre-dominantly CKD. Over 90% of the market, especially in the more affordable range are CKD,” he explained.
Earlier, we pointed out that should the price gap between CKDs and CBU imports narrow thanks to the OMV-affected price increase, carmakers will no longer bother with the hassle of local production and just bring in CBU imports – this would be a big loss for the industry and country, an example of being penny-wise but pound-foolish. The same applies to the bike industry, too.
“On the industry side of things, this may also open up doors for parallel importers coming into the country, because as CKD costs go up, CBU players that have not made any investments into the country can bring in vehicles into Malaysia,” Hoo said, adding that the government should have a balanced view between increasing tax collection in the short-term versus attracting investment.
“MITI and MoF need to strike a good balance between potentially higher tax collection and bringing in new investments into the country. At the same time, they should also take care of companies that have brought us here thus far, especially the ones that have set up factories, CKD operations, employed local workers and supported the local supply chain ecosystem,” he said.
“Perhaps larger manufacturers may be able to absorb some of the impact, but there will be smaller players that won’t have the capacity to do so. If so, the burden will have to be passed on to the end consumer. And ultimately if that company is incapable of selling their bikes at the inflated prices, we may even see people losing their jobs at retail, factory and supply chain levels too,” the MASAAM president warned.
Here’s an explanation of the bullet we just dodged, and the timeline. The controversial ‘402’ – gazetted on the last day of 2019 – 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.
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 – confirmed this month – 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 – you don’t want to invest in local production and ‘live on the edge’ every December hoping for the best, do you? No exaggeration here – the second deferment was announced just two days before 2021 ended!
Perhaps the subsequent administrations after Pakatan Harapan do see the logic behind the argument of carmakers, automotive vendors and now, the local motorcycle industry, hence the repeated stays of execution, but annual deferments surely isn’t the way to go – this regulation needs to be reversed once and for all.
