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I wrote this on 22nd January 2020. Please have a read and correct me if I got anything wrong. Thanks!
MALAYSIAN AUTO INDUSTRY – PRICE HIKE OR NO PRICE HIKE?
(To be edited)
I wrote this on 22nd January 2020. Please have a read and correct me if I got anything wrong. Thanks!
MALAYSIAN AUTO INDUSTRY – PRICE HIKE OR NO PRICE HIKE?
(To be edited)
So guys, lately there have been articles on prices going up after CNY (Ref. 1). Up to 15% actually. Said articles were published on or around 17th January 2020.
At 4PM on Tuesday, 21st January 2020 MOF called for a meeting with members of the Malaysian Automotive Association (MAA). They were told that the OMV (Open Market Value) calculation must now include marketing costs, etc., basically everything in the value chain,
where once it had been only ex factory costs. I won’t go deeper into that as you can read about the details in numerous online articles out there.
Basically some CKD cars would see increases in retail prices of up to say, RM20k due to an increase of duties payable, so the MOF rep says hey no problem we’ll give you an ‘exemption’ so no RM20k up, BUT … you need to up your retail price by 4%!
This came from M.A. Sivanesan, Under Secretary, Tax Division of the Ministry of Finance. He said at the 4PM meeting that the new OMV would result in the taxes going up by xx percent but then an exemption would be given to bring it back to what it was before.
However, the retail price would then go up by 4% to cover an additional increase in duties. This is assuming carmakers pass all the cost increases to customers.
While this was happening at around 4PM, that very same day YB Lim Guan Eng, Minister of Finance is reported as DENYING that prices will rise by 15-25% (Ref. 2).
Finally on Wednesday 22nd January 2020, MAA President Datuk Aishah Ahmad says the government will NOT be increasing the OTR prices of vehicles this year (Ref. 3).
To say this is all quite confusing would be an understatement.
To say this is all quite confusing would be an understatement.
What’s really surprising is that LGE stated on the 13th of January 2020 that Malaysia’s ‘Shadow Economy’ accounts for 21% of the GDP, and amounts to around RM300 billion! (Ref. 4).
So if that’s the case, LGE … with all due respect why don’t you fill the nation’s coffers by going after the shadow economy criminals IN the motor industry, and other industries for that matter.
Surely you don’t need people on social media to tell you how they do it, and how you can stop it? Why increase car prices?
In an industry where the retail side (dealers) make around 5% gross margin on car sales (+3-5% variable margin, gross), a 15-25% increase, or even a 4% increase WILL be passed on to the customer. This hits the middle and lower income groups in Malaysia the hardest.
Unless of course, he thinks the middle class IS in fact, the shadow economy? On the surface, increasing tax revenue is awesome for a government. A secondary ‘benefit’ is less cars sold, so what’s that benefit? Better for the environment? Greta Thunberg would be proud.
If I were an MOF planner, why would I want to do this? Increase my tax base. But … what will happen? I’ll be putting a strain, especially on the M40 and B40 groups.
If you really want to punish the Malaysian Taxpayer, why not punish them with an additional tax or cess on the T20s, who are buying expensive cars, changing cars every 4-6 years.
Let’s go full Greta and say, impose an additional tax hike of 4% on your 2nd household car, 8% on the third. Something like that. You can do that. Doesn’t it make sense … if you make a lot of money, buying your first car? No problemo.
For your wife? No prob. For your son or daughter? NO worries. Why tax the M40 and B40 groups, the ones who record every bit of spending and struggle to buy cars? Do your homework. You have all the data right?
Apply the 4% on the B40, M40 and T20 based on historical data and see how much your tax revenue increases. Scenario 2, apply your 4% on the T20 based on 1st, 2nd and 3rd cars. It’s so simple.
How about tax exemption for people who really go green and use public transport? Is it because it is impossible to provide a tax relief as public transport is already subsidized? I don’t know.
One of the more obvious questions is why go through all these shenanigans for CKD and not CBU? Of course the volume of sales of CKD units far exceed CBU, but on the surface it looks like the companies who've invested in FULL CKD operations are being punished.
The communication to motor industry players seems inconsistent and disorganized, and to be frank this is a PR disaster.
