Traditionally excise duties are imposed on controlled or restricted items which the Government of the country want to control importation and distribution of. In the case of Malaysia the Government imposed excise duties on cars which to most people is complete absurd as cars should not be classified under controlled items similar to tobacco and alcohol. After signing the AFTA (Asean Free Trade Agreement), the Malaysian Govt had to comply with the agreement to reduce import taxes on cars manufactured in the ASEAN region. By doing this it meant that the Govt will lose tax revenue and could not protect Proton and Perodua. In the attempt to protect the local car industry, the excise duty was introduced as a way to gain back tax revenue and also continue to protect Proton and Perodua.
All this has resulted in sky high car prices which has hurt the Malaysian public. With a poor public transport network the Malaysian public have no choice but to buy a car and be saddled with a loan stretching almost 1 decade! Now with the emergence of the Opposition Party to challenge the currently ruling political Party and the pledge that the Opposition Party has made to reduce excise duties for car has put tremendous pressure on the ruling Party to follow suit.
The question now is whether this will materialise. Many are hoping that it will as it will help reduce the burden on new car owners but on the other hand the existing car owners will suffer heavy losses as their car's residual value will drop significantly. The banks or finance companies and used car dealers will also suffer losses. If the reduction is gradual the impact will not be quite as severe and if tax rebates are given to these companies to absorb some of the losses the effect will be cushioned. The Opposition Party's proposal is to gradually reduce the excise duties over 5 years which sounds very reasonable.
After 5 years of reducing excise duty, the resulting tax structure will be 10% sales tax and a maximum of 30% import duty (non ASEAN made cars). A car that once cost RM150,000 will be less than RM70,000 making car ownership less of a burden and the consumers will have a lot more disposable income.
New Zealand implemented such tax reductions in the 1990s and the reduction was also done gradually over several years. NZ now has one of the lowest car prices in the world.
I am hoping that this will materialise in Malaysia so we can avoid paid crazy prices for cars.
