With the uncertainty surrounding the possible increase in the prices of locally-assembled (CKD) cars in Malaysia, we finally have some clarity. The ministry of finance (MoF) has confirmed via statement by the Malaysian Automotive Association (MAA) that there will be no increase in CKD vehicle prices for a period of one year until December 31, 2020.
According to the statement, on-the-road (OTR) prices of CKD vehicles will remain as is due to the transparent reporting of the open market value (OMV) as outlined in the Excise (Determination of Value of Locally Manufactured Goods for the Purpose of Levying Excise Duty) Regulations 2019 dated December 31, 2019, which is in line with World Trade Organisation guidelines.
As a recap, OMV is the final market value of a CKD vehicle ex-factory, before the government imposes excise duties on it. 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.
This is different to that for a fully-imported CBU vehicle, which works on a price based on Cost, Insurance and Freight (CIF), to which import and excise duties are imposed. Excise duty is between 60% and 105% (regardless of CKD or CBU), calculated based on the car and its engine capacity, while import duty can reach up to 30%, depending on the vehicle’s country of manufacture. Vehicles from ASEAN countries are not imposed with import duty.
With this announcement, increase in OTR pricing due to the new OMV calculations will be fully absorbed or exempted by the MoF effectively immediately, with car companies required to submit their OMV calculations for models affected by this new methodology to Customs.
Under the new regulations, the computed OMV to determine duties will now take into account not just the profit and general expenses incurred or accounted in the manufacture of a vehicle, but also of its sale. Additionally, any difference in duties for past years will also be exempted by the MoF.
However, does that mean there won’t be any potential increase in car CKD prices after the one-year grace period? Not according to the MAA president Datuk Aishah Ahmad, who told members of the media, “we don’t know the quantum of increase.” She noted that the new OMV calculations could see CKD car prices go up by varying degrees (0-20%), depending on the model, although any increases will be gradual in the coming years and would only begin from 2021.