At the 2022 review by the Malaysian Automotive Association (MAA) this morning, president Datuk Aishah Ahmad revealed that the automotive industry has received a two-year deferment of new open market value (OMV) excise duty regulations from the government. This means that there will be no major price increase for cars due to duty/tax reasons until the end of 2024.
“OMV, we have got approval for two years, so the issue is resolved temporarily for two years. After the two-year period, we’ll have to appeal again and we’ll look at the outcome,” Aishah said when quizzed on the matter, adding that MAA – the club that represents all carmakers in Malaysia – received the letter of approval from the government in the last week of December 2022.
When asked on the new government’s stand on the issue, Aishah said that it’s early days and MAA will continue to engage with the policymakers. “We have to let the new government settle down first. Closer to the date, maybe next year, we’ll appeal again and put forth our suggestions on why we have to maintain the old OMV,” she said.
What’s this all about and why does OMV matter? Here’s some background. In 2019, the then Pakatan Harapan government came up with revised OMV calculations for excise duty. Prepared by the finance ministry and gazetted on the final day of 2019, it was originally planned to come into effect in 2020, but MAA has successfully appealed its case till now.
With higher OMV, CKD locally assembled vehicles will attract higher taxes. OMV is the final market value of a CKD car ex-factory, before the government imposes excise duty 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.
The gazetted new regulation adds new components to the OMV calculation, adding into account not just the profit and general expenses incurred or accounted in the manufacture of a vehicle, but also of its sale.
The “and sale” clause applies to areas such as engineering, development work, art work, design work, plan and sketch, royalty payments and license fees (patent, trademark, copyright). There’s a clause that widens the net considerably by including “any direct and indirect costs incurred or accounted in the manufacture and sale of the dutiable goods.
The inclusion of this “office cost” versus only “factory cost” (our terms) factors in the sales and marketing costs of a particular model at the distributor level. As excise duty is levied on a car’s OMV, the RRP that consumers pay will rise accordingly. Up to 20%, MAA said then. CBU imports use a different system – import and excise duty are imposed based on based on Cost, Insurance and Freight (CIF) values.
Read more about OMV and car prices here.