‘Car tax slash must be gradual’

Debate over the viability of Pakatan's pledge to make cars cheaper continues, with two industry players giving their views on how they would be affected if it becomes a reality.

PETALING JAYA: The Pakatan Rakyat’s pledge to revamp the National Automotive Policy (NAP) – including slashing taxes to reduce the triple tax burden to make cars cheaper – must be done gradually to soften the blow to second-hand car dealers and owners.

This is because a sudden decrease in excise and import duty as well as sales tax would not only affect new cars, but directly affect the used-car industry and the consumers as well, according to Federation of Motor and Credit Companies Association of Malaysia.

Its president, Tony Khor, said that if new cars pricing changes, the used-car dealers will be “the first to be affected”.

“To us, whatever tax change must be done gradually. If done too much, it will definitely affect used-car value. Let’s say you have tax reduced too much, the price of our current used cars on the road which is almost 10 million units will go down too,” he told FMT.

Khor said that dealers are responsible to their customers and therefore it is important to stabilise the value of used-cars too.

“Let’s say an owner is still financing his car, and after three to five years maybe he would want to trade in for a new car. But if this policy is put in place and his car’s value drops, it would be harder for him to get a better, new car, or even a car at the same value,” he said.

Khor said a sudden tremendous reduction in taxes could also create problems of customers defaulting on loan payment.

“Loans outstanding for them will be more than the market value of the car, it will be difficult for buyers,” he said.

Market will adjust

While Khor did not explicitly state whether he was rejecting the Pakatan plan outright, another used car dealer told FMT that he supported such tax reductions as he was optimistic that “the market will adjust” if cars became cheaper.

“We have to go through it and one and for all, everybody will have cheaper cars. Yes, of course, initially we second-hand dealers will of course be affected. So let’s say give it a time period, two years to prepare, gradually make it lower and lower, I’m sure the market will adapt to it,” said the salesperson, who wished to remain anonymous.

“The only people who will be badly affected are the Umno people, the Bumiputera and AP [approved permit] holders. Eventually all will be okay, it’s a move that will benefit Malaysia,” he said.

Meanwhile, the Federation of Automobile Workshop Owners’ Association of Malaysia said that it supported the possible change in policy, with its president Simon Too saying: “Cheaper cars will be good news for the public, especially the end-user.”

“If cars are cheaper, everybody will buy new cars. Then the old car also can be sold out for scrap metal. With new cars coming in, then your members [workshop owners] would also get more business. More people will buy accessories and maintain them,” he said.

“If more people are buying cars, there are more cars on the roads… more accidents also,” he added.

Insurance coverage

Too, whose association has 3,000 members nationwide, said another positive point to having more new cars on the road for his members was that there would be more cars with first-party insurance.

“Insurance [companies] don’t want to compensate for old cars so they have third-party insurance, and our members can’t claim for repairs,” he said.

Too said that Malaysian cars have been expensive for too long a time. “I support this proposal. I am a user also, I want to buy cheaper cars,” he said.

Declining to comment on the issue, Malaysian Automotive Association (MAA) president Aishah Ahmad told FMT in a text message: “I would rather not be quoted on anything related to politics, please get someone else to quote.”

On Tuesday, PKR’s chief strategist Rafizi Ramli said the Pakatan coaltion will “completely revamp” the NAP and slash the triple-tax burden – excise and import duties and sales tax – imposed on cars if it takes over Putrajaya in the next general election.

He said phasing out car taxes will boost disposable income and reduce household debts. Opposition Leader Anwar Ibrahim is expected to announce more details of the proposal next week.

He said that currently, taxes increase the price of a car by at least 70% for lower capacity cars (below 1,500cc) or over 100% for those with higher capacity.

Rafizi also said a revamp of the AP system would also be among the steps in the proposal. (It was previously announced that the termination of APs for used vehicles would be implemented by 2015 while franchised APs by 2020.)

“Malaysians know that the prices of cars in Malaysia are extremely high as a result of the Umno-Barisan Nasional (BN) automotive policy, which was designed to protect the interests of their cronies at the expense of the people,” Rafizi had said at a press conference.

“We want a complete revamp of the NAP… phase out taxes, let prices be competitive and reflect the actual cost of the car… this will have a significant impact on our disposable incomes,” he had said.

Malaysians are currently paying duties of between 65% and 105% on cars they buy on top of 10% in sales tax, which is among the highest in the world. This meant that if a Malaysian consumer paid RM100,000 for a car, as much as RM55,000 went to the government.

The sceptics

Rafizi’s announcement drew flak from some BN leaders, with Umno Youth chief Khairy Jamaluddin saying that it was not feasible as it was “economically unsustainable”. The Rembau MP had said it would cost the government RM4.6 billion a year.

Minister in Prime Minister’s Department Nor Mohamed Yakcop said that the nation would go bankrupt if Pakatan was allowed to go ahead with its plans, which would cost RM8 billion in taxes and affect development, especially in rural areas and Sabah and Sarawak.

The Malay Vehicle Importers and Traders Association (Pekema) had reportedly welcomed Pakatan’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.

Kuala Lumpur Malay Chamber of Commerce president Syed Amin Al Jeffri was also quoted as saying reducing taxes would result in cheaper cars, but would affect government income.

He warned that a different form of tax would probably need to be imposed on consumers.

Customs director-general Khazali Ahmad has also been quoted in the media as saying
the Customs Department’s biggest revenue comes from excise duty for local and imported cars.

He said that the nation’s development, including social health and education, would be adversely affected if Pakatan reduces these taxes.