Friday, March 4, 2011

The tax structure for cars in Malaysia: A misaligned incentive?

Question: Will imposing heavy excise duties really gonna help Malaysians?

So, enough of heresy, we look at some facts as published by MAA (Malaysia Automotive Association) with regards to taxes and duties imposed on the automotive industry. Here, you'll probably understand why you're using half your salary for your monthly repayment and you're not even driving a Ferrari.

One of the most common peeves by consumers in this country is the lack of choice (maybe also due to a fairly 'small market', you can see the domination of 2 or maximum 3 players in every income level from low, mid to high). Other than the price factor, national cars are not the first choice, why? Lack of technological advancement, lack of quality, bad service, questionable safety features, etc. So, Malaysians make do with what they have. They start with a national car because it's the cheapest. Then they probably upgrade to a foreign CKD marque once they have more income, but quality is still questionable (i.e local sourced and manufactured parts). Please note that when we mention 'low quality', we're not just referring to Proton or Perodua AS manufacturers. We're also referring to all the sub-industries that are brought to life by the automotive industry and that include the thousands of parts makers, fabric manufacturers, R&D centres, etc. If Malaysia, generally has a quality issue (lack of thinking for innovative solutions, instead all they think about is cost-cutting measures) then there will be a collective quality issue. Which really means the problem stems further than just Proton and Perodua - it includes your Hondas, Toyotas, Peugeots, Nazas, soon-to-be Bermaz and VWs - basically, any brands that own a manufacturing plant here. It's a collective problem. And read this, automotive is only one industry we're talking about here.

Can you imagine the excise duty, as low as 75% is slapped on top of the price of your car? My question is, yes... it is our national pride to have Proton which basically driven Malaysia to a new heights from before. It perhaps even single-handedly, opened almost an infinite amount of opportunities that helped shaped our economy. Millions are employed because of the automotive industry. But. Because of such unfavorable tax structure for a better quality car, some Malaysians are paying out at least 1/3 of their income. If the repayment was lower, and the mid-high income earners have more disposable money to spend, how would that change our economy? Of course, I hear some angry cynics - these people who chose to drive fancy cars deserve to pay a high price, they chose it!

Well, to be honest, Malaysia is a very extraordinary country. Our cars are more than just cars it seems, they are luxury badges. A symbol of upgrade. That again, ladies and gentlemen, is something we cannot deny in not having a hand in creating! We obviously have quality issues between national and non-national, CKDs and CBUs. We obviously have a strong price difference between local and foreign brands. Did we not shape the market to becoming what it is today? The ultimate question is, was the incentive misaligned? If cars were priced cheaper with more options to pick from in any one category, in short, a hell lot more competitive - will that favor the Malaysian economy more? Because when we're not spending 1/3 of our monthly salary on our cars, we could be spending on something else - property for instance, education for ourselves (or children) for instance, on charity, on better food quality, on travel, on so much more.

I'm sure if the overall quality of locally manufactured cars (regardless of brand) is improved, then Malaysia will be on her highway to a lot more possibilities. Once the foundation is set, who's to say we won't be a strong player in R&Ds and IPs in this region? And remember, Malaysia always has an edge over her neighbours. We're cheap and good. So let us stop being just cheap and start being good.

There's no right or wrong answer I supposed. But it's really something to think about. It's just time to recalculate whether current incentives and barriers are accurately measured and really giving us most bang for buck. It's time to change.


  1. UMNO connections probably pocketed most of these taxes! Time to throw them out to the wind.