Well, here we go again. The finance ministry has announced that the implementation of the open market value (OMV) excise duty revision, or the PU(A) 402/2019-Excise Tax Regulations (Determination of Value of Locally Produced Goods for Excise Tax Purposes), which was supposed to begin in January 2026, has been deferred once more, this time being pushed back by six months.
As sighted in a letter that was sent by the MoF on December 23 to the Malaysian Automotive Association (MAA), the ministry said that the implementation of the OMV will now be deferred until June 30, 2026, and as such, there will be no additional excise duty imposed on the cost of sale, general expenses and administration as well as profit of CKD vehicles until then.
A recap on OMV/402
As reported previously, the OMV/402’s introduction has implications on the pricing of locally-assembled CKD cars and motorcycles. Gazetted on the last day of 2019, the revision stipulates a new methodology of calculating a CKD vehicle’s OMV, which influences how much tax is to be paid and therefore, its selling price.
The OMV is defined as the final market value of a CKD vehicle ex-factory, before the government imposes excise duties on it, and is primarily made up of the cost of the CKD pack, cost of manufacturing and components as well as assembly and administration charges.
The revision seeks to introduce additional calculations to the equation, expanding excise duties to include non-manufacturing costs such as the sale aspect of a vehicle as well as associated elements such as marketing, administrative expenses and profit. Doing so will naturally increase the price of a CKD vehicle in the process.
The effects of OMV/402 have never been felt by buyers, as it has been deferred since it was first gazetted. The regulations were supposed to have come into force in 2020, but 22 days into that pandemic year, MAA announced that the finance ministry had deferred implementation to 2021.
By end-2020, it was deferred again, and MAA’s appeal to the government in 2022 for a continued deferment was successful, with a two-year postponement granted until December 31, 2024, and finally, once again to December 31 this year, prior to the latest extension until June next year.
Kicking the can down the road
No reasons were given as to why the revision has been extended once more, but it could well be that the mechanism (or its elements) has still not been finalised, and would not be by the January deadline.
As of mid-December, the MAA said that the government was still in the process of finalising the mechanism, with MAA president Mohd Shamsor Mohd Zain telling paultan.org that the ministry had indicated the mechanism would incorporate a new method that will minimise its impact, with “very little or no impact to pricing.” It was previously estimated that CKD prices would potentially increase by at least 10% as a result of the revision.
As we’ve said previously, all the uncertainty isn’t good for a company’s planning, forecasting and operations. Without clarity, this doesn’t just affect existing players, but future investments as well. After all, no one wants to invest in local production and ‘live on the edge’ every December (or as it turns out, six months now) hoping for the best.
If prices of CKD vehicles do go up by more than a fair bit, the question must be, why bother with the hassle of local production, because it would be easier to bring in CBU imports. We’ve stated before that while the government would collect more taxes with the revised OMV in the short term, it would likely come at the cost of sales volume and, down the line, production and eventually, job opportunities for Malaysians.
Still, given what has been indicated to it, the MAA believes that the revision will not have an adverse effect on CKD production, with Shamsor saying that there will be very little impact on this as well as on sales. “The government has been promoting local production and is also always looking out for local investment, so they are not going to create something that will hamper the business,” he said earlier this month.
