Malaysia Will Not Cut Car Excise Duties
27 June 2013
Posted by: Author: Mary Swire
Author: Mary Swire
Despite calls for reductions in new car prices in Malaysia, Trade Minister Mustapa Mohamed has denied that auto excise taxes will be cut, largely because any reduction in tax revenue cannot be contemplated while the Government is attempting to reduce the country's budget deficit.
The Government has had a fiscal deficit for the past five years and, with tax revenue next year expected to increase only marginally, that deficit is expected to reduce by less than had been hoped to 4 percent of gross domestic product (GDP) in 2013, from 4.5 percent in 2012. The Government has given an assurance that public debt will never exceed the level of 55 percent of GDP, and forecast that Malaysia's fiscal deficit will be 3 percent in 2015.
However, the Minister noted that, while the Government receives around MYR7bn (USD2.2bn) from auto excise taxes, it is not imposed at a flat rate of between 65 per cent and 105 percent on every new vehicle, but is adjusted downward for local content. The effective rate of excise duty can be considerably lower in practice.
In fact, it has been calculated that, as all car assemblers operating in the country are involved in value added activities using local content, the average net excise duties actually paid are between 40 percent and 50 percent, the equivalent of the duties payable on autos in Malaysia's competitors, Thailand and Indonesia.
He added that the Government will keep this year's election manifesto promise to reduce car prices by up to 30 percent over the next five years. It is hoped that free trade agreements will reduce import duties and prices in Malaysia, and, as the local automotive industry expands, the increased competition will have the same effect.
Despite a 10 percent sales tax, the Government also maintains that the cost of owning a car is reduced by lower road taxes and subsidized fuel prices, compared to other countries in the region.