Will Car Prices Go Up by 8% to 20% in 2025?

We may see significant price increases for locally assembled (CKD) cars in Malaysia. In 2019, the Finance Ministry under the then Pakatan Harapan government prepared the Excise (Determination of Value of Locally Manufactured Goods for the Purpose of Levying Excise Duty) Regulations 2019, which was gazetted on the last day of that year. The regulations 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.

The then-new regulations set down 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, artwork, design work, plan and sketch, royalty payments and license fees (patent, trademark, copyright). Think of it as ‘factory costs’ plus ‘office costs’.

 

 Source: https://en.wikipedia.org

 The regulations were supposed to come into force in 2020, but 22 days into the COVID year, the Malaysian Automotive Association (MAA) announced that the finance ministry had deferred implementation to 2021. MAA added that the new regulations could lead to CKD car prices going up by as much as 20%. 

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. No official announcement of yet another deferment has been made. So will every company that assembles cars in Malaysia must, by law, comply? 

Besides the planning, forecasting and operational nightmares endured by carmakers as a result of this uncertainty, there’s the regular consumer, who may have to by mid-2025 and pay up to 20% more for a CKD car. Indeed, analysts foresee lower vehicle sales in 2025 due in part to the OMV revisions and targeted RON 95 petrol subsidies. 

So, does the Government want additional tax collection in the short-term or control inflationary pressures and long run prospects in the automotive sector? 

Reference:

OMV excise duty revisions to take effect soon – CKD car prices in Malaysia to go up by 8% to 20% in 2025?, Jonathan James Tan, https://paultan.org, 19 December 2024