Prices of CKD cars may go up on 1-Jan 2025; MoF still mum on new OMV, excise tax restructuring

With only one month left before we enter 2025, many car companies in Malaysia are driving blind into the new year, with no confirmed price lists for their 2025 models while production plans and parts ordering – which typically require at least a 6-month lead time, at least – are still in limbo.

The reason is that car companies who contribute to the Malaysian economy by choosing to manufacture their cars here, are still unclear if the Ministry of Finance (MoF) will go ahead with implementing the new, revised method to determine a car's Open Market Value (OMV) - which has been put on hold since 2020, until 31-December 2024.

What is OMV?

To keep things simple, OMV can be understood as the cost price when it leaves the factory. It's also the value upon which excise tax is imposed on. OMV is generally calculated as the total cost of materials and manpower used to manufacture the car, plus freight and insurance charges to transport the completed car from the factory to the showroom. 

In the past, OMV calculation was simple; it was the cost of the car’s manufacturing.

What has changed for 2025?

In year 2020, when Lim Guan Eng was Finance Minister, a new method to determine OMV was introduced for locally assembled (CKD) cars. Other non-manufacturing related costs like administrative cost, marketing cost, even royalty payments and profit, are included in the new OMV, dramatically raising the value of excise tax payable.

If implemented, prices of CKD cars could increase by up to 20%, estimates the Malaysian Automotive Association (MAA).

Perodua, the largest automotive manufacturer in Malaysia, and the fourth largest in Southeast Asia (behind Toyota, Honda, Isuzu) confirmed in 2020 that the Ministry did not consult them before revising the OMV.

Following strong pushbacks (even the German Embassy weighed in on the matter), the Ministry gave a two-year exemption on the matter twice; first was until 31-December 2022, before extending it once more until 31-December 2024.

The problem was never solved, only pushed to a later date for the next Finance Minister to address it.

Today, Prime Minister Anwar Ibrahim is also Finance Minister, and the Malaysian car industry urgently needs a clear resolution from his ministry on the matter.

Unless the Ministry of Finance clarifies its position on the matter, car manufacturers are legally bounded by Customs regulations to use the new OMV method starting 1-January 2025.

When asked to comment on the looming deadline before the exemption expires and the new OMV comes into effect, MAA President Mohd Shamsor Mohd Zain said, “We have engaged with the government for quite some time now. However, we are still waiting on certain decisions from them. Definitely there will be a big impact on the industry, especially on the future cost of automobiles. I hope we will be getting a favourable response from the government.”

When asked how MAA members are planning for 2025 when they have no confirmed price lists for next year, President Shamsor said:

“We are taking things in stride. As far as some of our members are concerned, they are planning for the worst-case scenario. But basically, the worst-case scenario will also have a tremendous impact, especially on our planned production as well as stock planning. So, we are hoping for a favourable response from the government. I am not able to comment on why it takes so long (to decide on the matter), but it is hoped that we will be able to get a favourable response quickly so the manufacturers will be able to respond and react.”

The uncertainty surrounding OMV and excise tax values is just one example of why many car manufacturers prioritize investing in Thailand and Indonesia over Malaysia.

“This is a very simple matter. You don’t need four years to decide on it,” said a frustrated car company executive, whose team is preparing two different sets of price lists for 2025.

Another executive added, “The Minister, any minister of any ministry, doesn’t always know the full details and that's fine. The minister depends on advice of the officers. The problem is the ministers are sometimes given very bad advice.”