LGE denies car prices going up, but also said changes (if any) will be gradual – wait…what?

More than a week after The Star reported that prices of locally-assembled cars will be going up, Minister of Finance Lim Guan Eng have finally gave a reply on the matter, but unfortunately it only served to confuse more than inform.

Speaking at yesterday's press conference of the Budget 2020: Government Guarantee Schemes for SMEs, Lim was asked by reporters from the mainstream media (no automotive media were present, as it was a non-automotive related event) to comment on the matter, Lim asked rhetorically “Who said prices are going up?”

“This is not confirmed. This is just speculations. If necessary, an announcement will be made. Please wait for an official announcement,” he said.

When asked further if he is concerned that car prices will increase Lim said, “Yes of course. If there are any changes, it needs to be made in stages, it can’t be so abrupt. So what has been reported or sensationalized is not true, it has not been confirmed.”

When asked if there have been any discussions to increase prices of cars, Lim said, “We often have discussions, because we need to keep to our obligations under WTO. In the interest of transparency, we need to ensure that car companies are filing their (financial) reports in a correct manner. So that’s the problem. That is what we need to ensure. There are no changes in excise duty, only in the manner of reporting. If in the past, they have not been filing the correct reports that could be a problem.

“So that’s why I keep saying that this is not final because the duty rates are the same. Only the reporting method it needs to be transparent. Of course this is an on-going discussion, but what has been reported is not true. So please wait for an official announcement.”

Interestingly, Lim’s answers came on the same day that Perodua’s CEO told the automotive press that Perodua wasn't consulted on the matter, which contradicts Lim’s answer.

Perodua is the largest car manufacturer in the country, buying over RM 5 billion worth of parts from local vendors so if Perodua was not involved in the discussion, we don’t know who else should be.

On claims that some car companies have not been transparent in their financial report - under declaring value of parts or vehicles for example – shouldn’t that be a job for Customs or Income Tax?

Surely Malaysia is not the only country that has to deal with tax evasion. Changing the way tax laws are interpreted in a manner that it affects the whole industry is a rather odd response.

As explained in our earlier report, although excise duties remain the same, the new method of OMV (Open Market Value) calculation - that base value that taxes are levied upon – has been changed to now include other costs like marketing cost, staff salary, and royalty payment for intellectual property rights. None of these were explicitly stated before.

How OMV is calculated is up to the government’s interpretation and the current government is adopting a rather extreme stance on the matter.

“What has my salary got to do with the how much our cars need to be taxed? Is the government now penalizing companies for creating high value jobs?” said a disgruntled product manager working at a local car company.

The bigger issue is that Malaysia’s automotive policy, especially the Energy Efficient Vehicle (EEV) incentives offered by the previous Barisan Nasional government, is vague and there is no detailed publically available policy paper for anyone to refer to. Incentives were given out on a case-by-case basis, discussed behind closed doors.

If there are companies who are guilty of tax evasion, of not passing the tax deductions to consumers, then they should be charged based on the rule of law. Reinterpreting how OMV is calculated, doesn’t address this.

At the moment, the Ministry of Finance’s response inadequate.

By the way, it's interesting that Lim mentioned obligations under WTO. However the existence of Approved Permits (APs) alone contravenes against WTO, and this was confirmed by MITI themselves under the 2009 National Automotive Policy (NAP). Of course we all know that the previous Barisan Nasional government later made a U-turn on this following strong complaints by Open AP holders (used for import of recon cars). The subsequent Pakatan Harapan government would go one step further by making Open APs unlimited, so long as the AP holders meet MITI's audit requirements. 

UPDATE: Moments ago, MAA president Datuk Aishah Ahmad has confirmed that the updated OMV calculations will bump car prices up, between 0-20%, though it depends on the model. She also said that the increase in car prices will be gradual, and is set to kick in from 2021.