New tax likely if car duties slashed, says Malay business group

KUALA LUMPUR, July 26 — Malaysians will likely face a different tax burden if Pakatan Rakyat (PR) implements its electoral pledge to reduce car prices by cutting duties, a Malay business group has warned, saying the move would affect government income.

Kuala Lumpur Malay Chamber of Commerce (KLMCC) president Datuk Syed Amin Al Jeffri pointed out that the loss of income from slashing car excise and import duties would have to be compensated through a different form of taxation on consumers.

File photo of Proton cars. A Malay business group says abolishing excise duties on cars would lower government income.

“If excise duties are abolished, in a positive aspect cars would really become much cheaper.

“But it should be reminded that the other effect is that government income would also drop,” he told The Malaysian Insider.

As a result, Syed Amin predicted any PR government would have to impose new taxation on consumers to boost its income.

PKR chief strategist Rafizi Ramli had on Tuesday said the three-party PR pact will revamp completely the National Automotive Policy (NAP), including slashing hefty excise duties and reducing the triple-tax burden imposed on cars here, should it win Putrajaya in the next general election.

The PKR leader told a press conference here that the plan, to be slotted into PR’s election manifesto, would be used as a major campaign issue for the federal opposition as it fights for federal power.

The offer to voters will effectively boost the disposable incomes of Malaysians and reduce household debt, he said.

Rafizi had also admitted, however, that slashing excise duties would cut government income by some RM8 billion but he pointed out that revenue could be earned through other means without the need to impose additional financial burdens on taxpayers.

Disagreeing, Syed Amin noted that the current excise duties imposed cars here vary according to the engine capacity of a vehicle.

“Those with higher incomes are generally taxed more because they tend to purchase larger cars with bigger engine capacities... but those in the lower-income category buy vehicles according to their affordability... so the taxes on them (the latter group) are lower,” he said.

While scrapping duties would lower car prices significantly, the new taxation that may be imposed by the government would likely be across the board, regardless of an individual’s income level.

“But we cannot be certain of that yet,” he admitted.

Syed Amin said it was unlikely that the present Barisan Nasional (BN) administration had introduced excise duties under the NAP without taking due consideration of the affordability of Malaysians.

“So if we want to abolish (excise duties) for emotional reasons... it’s difficult... the loss of income has to be compensated somehow,” he said.

When extolling PR’s electoral pledge on Tuesday, Rafizi had cited statistics from the Household Income and Basic Amenities Survey Report 2009, noting a worrying trend which showed that an individual earning about RM3,000 a month could spend up to 50 per cent of his income to maintain a car.

He said the study had shown that 53 per cent of Malaysians record household incomes of RM3,000 and below while 71.9 per cent own or use cars.

“And hire purchase debts contribute the second highest to the total household debt... a total of RM134.2 billion as at the end of May 2012,” he said.

This was a RM16 billion or 14 per cent increase in just 18 months compared to the RM118 billion as at November 2010, he added.

Rafizi had also explained that the triple-tax burden imposed on cars — excise and import duties and sales tax — could hike the price of a car by at least 70 per cent for lower capacity cars or over 100 per cent for those with higher capacity.

As an example, he said, a 1,500cc Perodua car could cost up to RM40,000 although its actual cost was merely RM23,500 because of the 60 per cent excise duty and 10 per cent sales tax imposed on the vehicle.

“This means you would be paying an additional RM16,500 for taxes alone on the car,” he said.

The Malay Vehicle Importers and Traders Association (Pekema) had yesterday welcomed PR’s pledge but said that it was sceptical the opposition pact will be able to live up to its promise in the run-up to key national polls due soon.