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CKD car prices won’t increase this year with open market value, thanks to Finance Ministry exemption

22 Jan 2020 / 23:02 H.

PETALING JAYA: There will be no increase in on-the-road (OTR) prices of locally assembled vehicles this year arising from the transparent reporting of the open market value (OMV), which would have seen car prices increase as much as RM33,000 per unit for certain models.

Malaysian Automotive Association president Datuk Aishah Ahmad received word from the Finance Ministry (MoF) today that there will be a 100% exemption on the increase of OTR price for a year until Dec 31, 2020.

This is for models that have been impacted due to the transparent methodology of how OMV is calculated, as outlined Customs Gazette PU A (402) dated Dec 31, 2019.

She said any increase in OTR prices would be fully absorbed or exempted by the MoF for this year and the difference in duties for past years will also be exempted by the ministry.

OMV, which is assessed by Customs, is the final market value of a completely knocked down (CKD) vehicle ex-factory, before the government imposes excise duties on it. The new OMV calculation is to comply with World Trade Organisation’s requirements.

“On Dec 31, 2019 they gazetted the formula for OMV and in that there were a lot of marketing costs, profits, royalties to be included. Once you add in those elements, the price of cars would have gone up,” Aishah explained after announcing the market review for 2019 and outlook for 2020.

“This OMV is there all the time but it was not detailed out. There are some models not impacted by the price increase, but many would have been impacted,” said Aishah.

She said the price increase varies from company to company, but estimated that prices could increase as much as 15-20% if fully impacted.

“Had the OMV been implemented (without MoF’s exemption), many investors would have second thoughts about investing in Malaysia.”

Car companies were asked to submit the OMV based on the transparent calculation to Customs immediately for models that were affected with this new methodology.

“The excise duty of 65-105% for passenger vehicles has not changed, but the base for the calculation of the OMV has increased, because you add in a lot more costs. Once the base is higher, the duty you pay is higher, the OTR price is even higher.”

Further consultations will be done by Customs and MoF with the industry players during the year to determine the transparent reporting of the OMV after 2020.

“If any increase happens after 2020, it will be a gradual increase over a five-year period. The industry hopes that there is will be increased demand in car sales (in 2020). I’d expect Jan 1, 2021 to have some price increase but we don’t know what is the quantum of increase for next year,” Aishah said.

Meanwhile, she said completely built-up (CBU) vehicle prices will go up as the formula to calculate the price will be revised effective June 1, 2020.

“Last time, the landed price remains the same until a new model application but effective June 1, 2020, it will be based on transaction value. You have to pay duties based on the CIF (cost, insurance and freight) value and also based on the latest exchange rate.

She said principals will normally increase CBU car prices on a six-month or one-year basis, but it will soon be based on the exchange rate and the day the shipment arrives.

“Previously once you’ve got the approval for CBU, you can use the old gazetted value for as long as there is no model description or model code change. Now (from June 1), every week when new cars come in, it (prices) will be different.”

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