Car Taxation in Malaysia

Teh Fu Min (0906A72754) - Section 9 - First Article

Car Taxation in Malaysia

            We Malaysians love cars. It’s probably the first major purchase we make as soon as we land a job. But we still complain that cars in Malaysia are overpriced. Ever wondered why? Where does all the money go? Are we willing to pay that much money?

            Let’s say my dream car, the Volkswagen GTI, in UK it cost about 24 thousand pound which is around 120 thousand ringgit, but in Malaysia it cost about 215 thousand ringgit. That’s twice as much, why do cars in Malaysia cost so much? We Malaysians love our cars but more than love our cars, we need them. We need these cars to work, study, or anywhere else. We can’t just depend on public transportation. The question is though, with more and more cars in the market, why do cars still cost so much? So much that we need to take loans from bank in order to buy these cars which are similar to those kind of loans for houses. But unlike houses, across a period of time the prices of cars won’t go up, they go down. So when we finish paying for the car, the car maybe worth nothing.

            Based on an article, The Royal Malaysian Customs director-general today came out in support of maintaining car taxes, saying it added up to RM7 billion annually to the Treasury that was used to aid development projects nationwide. “About RM6 billion to RM7 billion are collected annually just from vehicle’s excise duty. Imagine how many schools and hospitals we can build with that amount of money,” Datuk Khazali Ahmad was reported as saying by English-language daily The Star today.

            Malaysians pay extreme prices for cars mainly because of the protection afforded to national carmaker Proton since 1984. Car buyers must pay import and excise duties as well as sales taxes that translate into some of the highest car prices in the region. Excise duties, which form the bulk of car taxes, are imposed on foreign-made and local-made cars alike. A recent income survey found that a household earning RM3000 a month could spend up to 50 per cent of its income on maintaining a car. A cut in car duties — which currently run as high as 105 per cent — could help stimulate the economy by boosting disposable income and reducing household debt burden.

            The demand of imported car will swing based on the market. When the economy is good, people intend to buy imported car although local made car is much cheaper. This is because some people had the mindset that our local automobile industry facilities is not that advance. Based on one of the article by the star, local cars are giving more problems and need to be repaired compare to imported cars. Many more are buying imported branded cars because they are showing off and they can’t pay their loans according to time.

            In Malaysia, a cut in car duties — which currently run as high as 105 per cent — could help stimulate the economy by boosting disposable income and reducing household debt burden, analysts say. Their comments come after Pakatan Rakyat’s (PR) made an electoral pledge to slash the hefty excise duties and taxes on cars that have caused Malaysians to bear some of the highest sticker prices in the world. Economist Datuk Mohd Ariff Abdul Kareem said that consumers will be “very happy” with the tax cuts as cars, which are currently priced far above what consumers in many other countries pay, will become more affordable. Now with the Global University of Islamic Finance, the move to put more disposable income in people’s pockets would help the economy as it becomes more dependent on domestic consumption to drive growth. The senior economist suggested one way was to shift the tax to the petrol pump so that consumers are taxed by how much they drive rather than on the car itself. Such a move could also help boost the usage of public transport. Malaysians are currently paying eye-watering excise duties of between 65 and 105 per cent on cars they buy on top of 10 per cent in sales tax, which means that if a Malaysian consumer pays RM100,000 for a car, as much as RM55,000 goes to the government. The duties are a lucrative form of revenue for the federal government but have also helped push up household debt levels in Malaysia which, as a percentage of Gross Domestic Product (GDP), are the second highest in Asia. Apart from the duties, a system of APs is given to a select number of companies and car importers, allowing them to bring in cars and charge up to RM40,000 for the permit to the customer.

            After long story, the main reason of why cars cost so much in Malaysia is because we have the National Automotive Policy (NAP) in another word, we have Proton. Hence, all the taxes we payed is not just for creating a national car, it’s about creating a national automotive industry. So the gamble was to create a high technology industry that Malaysia can use to industrialize, so in order for that to succeed, we as Malaysian need to buy a large amount of local car. So in order to encourage us to buy local cars, the government put in taxes, approved permit (AP), on imported cars to raise the price of those cars.