OMV issue: 2025 prices to be maintained, temporary respite for CKD car buyers, MoF delays expanded excise duty scope until 2026

Hans
21.12.2024 04:22 PM

OMV issue: 2025 prices to be maintained, temporary respite for CKD car buyers, MoF delays expanded excise duty scope until 2026 01

Car companies and buyers of locally assembled (CKD) cars in Malaysia can breathe a sigh of relief as the Ministry of Finance (MoF) has agreed to delay the implementation of a revised Open Market Value (OMV) calculation method used to determine the excise duty payable. This means the feared price hike for CKD cars, which in the context of Malaysian taxation also includes semi-knocked down (SKD) cars, will be postponed until 1 January 2026.

However, this is only a temporary respite, as the written reply sent by the Ministry of Finance to the Malaysia Automotive Association on Thursday, sighted by WapCar.my, explicitly states that there will be no further extensions.

As a recap, in 2020, the Ministry of Finance, then under YB Lim Guan Eng, introduced a new excise tax regulation, P.U.(A) 402/2019 - Excise Regulations (Determination of the Value of Locally Manufactured Goods for the Purpose of Imposing Excise Duty) 2019. This regulation expands the scope of automotive excise tax on locally assembled vehicles to include non-manufacturing costs.

Proton Tanjung Malim Sdn. Bhd. (PTMSB) manufactures the cars, which are then sold to Proton Edar. PTMSB does not incur any sales and marketing costs, so the impact is lower.

Similarly, Perodua Sales Sdn. Bhd. (PSSB) buys finished cars from Perodua Manufacturing Sdn. Bhd. and Perodua Global Manufacturing Sdn. Bhd. (PGMSB).

Non-national brands like UMW Toyota Motor also follow this model, purchasing finished cars from their manufacturing subsidiary, Assembly Services Sdn. Bhd. Others, like BMW Group Malaysia, contract Inokom Corporation Sdn. Bhd. to handle manufacturing.

However, all these brands except Perodua - which pays very minimal excise tax due to the very high rebates they get for the value of local content used in the cars - will still be impacted by the other non-manufacturing costs added.

In contrast, all-in-one organizations like Honda Malaysia and Mercedes-Benz Malaysia will face greater impacts, as their sales, marketing, and manufacturing costs fall under the same entity. These companies may need to restructure their organizations—a complex and messy process that would involve their manufacturing principals in Japan and Germany. Legal agreements and financial documents would need extensive revisions.

Misaligned Policies
This raises the question: Why is Malaysia imposing such measures on companies that are investing in local manufacturing and supporting local vendors?

Foreign investment coordination agencies like MIDA and MARii are working hard to attract automotive investments into Malaysia. One would expect the Ministry of Finance to align its policies with these agencies to position Malaysia as the go-to destination for automotive investments.

Mercedes-Benz Malaysia is the first German company to build a battery EV (BEV) in the country. When Malaysia said it wants to promote BEVs to achieve its net-zero targets, Mercedes-Benz said they will support us. In the '80s, the Stuttgart brand chose Malaysia to be the first country outside of Germany to be given the honour of locally assembling an S-Class.

OMV issue: 2025 prices to be maintained, temporary respite for CKD car buyers, MoF delays expanded excise duty scope until 2026 05

As for Honda Malaysia, it is the first to locally assemble a hybrid car here, and the first to produce high voltage battery packs (Honda calls it Intelligent Power Unit, IPU) in Malaysia. They did this because in the late 2010s, Malaysia said it wanted to promote the so-called energy efficient vehicles (EEVs, what happened to that now?), so Honda answered the call.

Honda one of the largest automotive investors in Malaysia. Because of Honda Malaysia's contribution to developing the local vendor base, the Pegoh industrial area in Melaka can now attract Chinese brands like Haval to produce their cars there.

At a time when Thailand, Indonesia, and Vietnam want to pull investors away from Malaysia to their countries, you would think that Malaysia will be smart enough to build on the decades-long relationship that these companies have with us.

Instead, the MoF appears intent on making it more difficult for them to justify increasing investments in Malaysia. Our already archaic excise tax structure—still based on engine capacity rather than CO2 emissions—is now even more complicated.


Also, in a splendid display of our hardworking government officers giving their best at work, the decision by the MoF was communicated to automotive industry stakeholders on 19-December, because doing 2025 budgeting and planning early is for the weak right?

OMV issue: 2025 prices to be maintained, temporary respite for CKD car buyers, MoF delays expanded excise duty scope until 2026 06

Also read: Hybrid sales surge 40% in Thailand while Malaysia's contradicting policies stall EV transition

On the upside, the prospect of price hikes in 2026 means that car sales in 2025 are likely to be inflated as buyers bring forward their purchases. While this is good news in the short term, it also means that 2026’s sales will be severely depressed.

Car companies will need to make hay while the sun shines in 2025 to weather the thunderstorm looming in 2026. The question is: how many dealers will be able to survive the storm?