By Yamin Vong

Two possible outcomes for Malaysia’s automotive industry next year:

One is that it will be a good year for car buyers because price competition from new car brands will make cars cheaper.

The other outcome is that car prices will go up next year because the Ministry of Finance will finally implement a new tax structure where excise duty will indirectly increase on-the-road prices of new cars.

It may even be that there will be a shortage of new, locally assembled cars, if the car makers’ submissions of the new tax returns are not processed in time for the car sales peak for Chinese New Year next month.

Overarching the two outcomes is the strong probability that the bloodbath currently ongoing in the local car assembly industry will continue into 2025 with legacy car makers losing market share and revenue to the new car companies.

There probably will be a push-back from the Malaysian Automotive Association (MAA) about the controversial new tax structure for calculating the excise duty for locally assembled cars. But it may be too little time for the MAA’s newly appointed Chief Operating Officer to do anything about it.

Excise duty is an indirect tax on locally assembled products, including the assembly of cars, which is collected from the car buyer by the car seller. In the context of the automotive industry, the rate of excise duty is reduced in inverse proportion to local content ie. the larger the value of local content, then the lower the excise duty.

While this new tax structure was announced years ago, it was not implemented. However, some local assemblers confirmed that they had received a notice early this month that the exemption would not be extended any further.

The irony is that the new car brands in Malaysia have not invested on the scale of that legacy brands have over the years and they won’t have to pay this excise duty because most of them are selling either fully imported cars and/or cars which are assembled from semi-knock-down (SKD) kits.

Most of these new car brands have tax exempt status: electric vehicles (EV) are fully exempt from import duty and excise tax until 1 Jan 2026. As for their internal combustion engine (ICE) cars that they sell, it looks like they are also tax exempt for the period it takes them to build up their assembly plants.

For the legacy automakers, it looks like next year will be a horrible business cycle where their locally assembled cars will be taxed more and cost more to car buyers. And the encroachment of their market share will accelerate because the new car brands will thoroughly take advantage of their tax-exempt status.

Don’t worry though if you’re buying a Perodua or a Proton. Perodua qualifies for full excise duty exemption in compliance with the Ministry of Investment, Trade and Industry (MITI) policy to encourage content localisation. Proton is a JV with Geely and qualifies as a manufacturer because it stamps the body for the Saga and the Persona. Both these car companies are committed to introducing locally assembled EVs within the next 2 years.

It can’t be that the government wants to add to the burden of Malaysians who are already paying very high taxes on new cars.

On the other hand, it could be very well the work of a harassed bureaucrat in the Finance Ministry who has been tasked to find more revenue for the government but who doesn’t realise the consequences to Malaysia’s car buyers as well the local-assemblers in the automotive industry.

Perhaps it’s best to review the car tax structure so that there’s an equilibrium between tax revenue and tax burden as well as rewarding buyers of PHEVs and range-extenders that are part of the energy transition journey towards zero-emission cars.

Would you support a structure where the tax burden is lowest on EVs and progressively gets higher hybrids, plug-in hybrids, range-extender hybrids and so on?

Yamin Vong is a veteran journalist in the automative industry well-known for his passion for everything on wheels

The opinions expressed in this article are solely the writer’s and in no way reflects the views of Paparazzi360.