What Causes High Car Prices In Malaysia?

The idea of cheaper cars may leave some Malaysians, especially those who live in urban areas, skittish due to bad traffic congestion and the effect fossil fuel has on the environment. However, pushing these implications aside, what causes high car prices in Malaysia?

Malaysia is rumoured to have some of the highest car prices in the world, due to a costly combination of high duties and taxes levied on cars, and a policy aimed at protecting the local car manufacturing industry and reducing loss from the outflow of Ringgit to foreign countries.

Malaysia’s car industry is dominated by two local manufacturers, namely Proton and Perodua, which are heavily supported by the government through the National Automotive Policy (NAP), which was first set out in 2006, with the last revision in 2009.

To superficially compare Malaysian car prices to other countries, we can look at Germany’s taxi of choice being the Mercedes-Benz E-Class, while taxi passengers in Thailand travel in the Toyota Camry. In Malaysia, our fleet of taxis consist mostly of local cars, such as Proton Iswara (first released in the early 1990s) or the newer Proton Saga. For the average-income Malaysian, both Mercedes-Benz E-Class and Toyota Camry, are viewed as luxury car models priced beyond their reach.

Here’s how much a Toyota Camry costs in the USA, Thailand and Malaysia.

Sources: Toyota official websites – USA, Thailand & Malaysia

What does this difference in price mean to us? A simple loan repayment calculation for the Toyota Camry shows a difference in monthly repayments. For a loan equivalent to 90% financing with an interest rate of 2.45% and loan tenure of 7 years, the monthly instalment runs up to a whopping RM1,994 per month.

In contrast, the same car purchased using the same loan term and interest rate will only cost RM1,152 in the US and RM1,664 in Thailand. If car prices in Malaysia are reduced, the overall household debts in Malaysia can also be reduced significantly.

Car loans continue to make up a huge proportion of household debts in Malaysia. According to iMoney’s infographic on bankruptcy in Malaysia, 25% (the highest) of bankruptcy cases in Malaysia is due to car loans.

So, why are cars expensive in Malaysia?

The price of a car is determined by its manufacturer, taking into consideration various factors and market forces. In Malaysia, no import duty is imposed for cars originating from Asean countries, while 30% import duty is imposed on vehicles imported from non-Asean countries.

Car prices are further escalated by the tax rate and excise duty imposed. According to Malaysian Automotive Association (MAA), the excise duty imposed on cars ranges from 65% to 105%, on top of the 10% sales tax.

According to the Estimates of Federal Government’s Revenue for the Year 2014 by the Ministry of Finance, Malaysia, the import duty collected on motor cars for 2013 is estimated RM2,417 million compared to 2012 at RM2,282 million.

Is there a possibility of abolishing excise duties?

The furore over the rising cost of transportation in Malaysia due to the recent fuel hike, and the expected toll and public transport hikes, has many Malaysians pleading for a reduction in car taxes.

In June 2013, the Malaysia Automotive Institute (MAI) clarified to LiveLifeDrive.com, that there will be no change in Malaysia’s excise duty structure for motor vehicles. MAI’s response comes after repeated reports by many government owned newspapers saying that new car prices are starting to come down.

So, will there be a significant drop in car prices if the excise duty levied on the production and sale of cars is reduced or abolished?

In truth, the subject of high car prices is actually quite complicated and goes beyond just taxes. According to Madani Sahari, the CEO of MAI, the assumption that excise duties are applied in the same manner across board is incorrect.

Even with the downward revision of excise duties, the prices of cars are not guaranteed to reduce.

According to International Trade and Industry Ministry’s Deputy Minister, Hamim Samuri, car prices would be cut gradually as promised by the government but several measures would be in place to ensure that it would not have a huge impact on the local automotive industry. However, it will not be in the form of reduced or abolishment of excise duties on vehicles.

Is there a light at the end of the tunnel?

If your finances allow and you prefer imported foreign vehicles, you may just be able to realise your dream sooner than you might think with the import tax discount offered on Complete Knock Down (CKD) vehicles – vehicles imported in parts and assembled locally. However, prices for Complete Build Unit (CBU) vehicles – imported fully assembled vehicles – will still remain high.

Furthermore, due to the ASEAN Free Trade Agreement (AFTA), all CKD and CBU vehicles will have zero percent import tax if imported from ASEAN countries. However, excise duties remain high for these vehicles.

The NAP, announced by the government on January 20, 2014, set out some changes designed to position Malaysia as the single production base and marketing hub for energy efficient vehicles (EEV) ahead of the Asean Economic Community (AEC) integration next year.

In the revised NAP, the government is set to terminate open approved permits (APs) by December 31, 2015 and reduce car prices by 30%.

Something has got to give. With public transport services still under development in Malaysia, most Malaysians have no choice but to travel by cars and carpooling may not be the best option for most due to the traffic condition in the urban areas.

Hence, it would seem that a review of car prices is in order to help lessen the financial burden caused by various price hikes that is faced by Malaysians.

 

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