Trans-Pacific Partnership (TPP) agreement might affect the Malaysian car prices!

Kuala Lumpur: Trans-Pacific Partnership (TPP) agreement is being released and now the major question around the automotive market is that, whether or not the prices of vehicles on sale in Malaysia will be affected as a result. Earlier it was reported that Malaysia is set to lift the cap on vehicle imports from the United States (US) when said agreement swings into motion. It’s now clear enough to proceed. Also, the agreement states that onwards from January 1, 2021, “Malaysia shall not provide, for motor vehicles, excise tax credits based on export performance, the use of local content or local value added.” Well, this will surely diminish incentives for manufacturers to establish CKD facilities here in Malaysia.

At present the government applies same excise duty on both CKD and CBU vehicles, however, the locally-assembled models are then granted excise tax credits. But now with these perks neutralised CKD and CBU models will only have one difference and that would be imported tax.

Talking about the import duties, we would like to mention that, import duties roughly ranges from 10% for CKD vehicles to up a maximum of 30% for CBU units, though vehicles imported from Japan, Thailand and Australia face even lower rates. Although it is yet to be seen that this difference would be significant enough for manufacturers to consider setting up CKD plants in Malaysia. Also, the loss of the excise duty credits will surely affect some brands mainly those that have made heavy investments in the country on the grounds on promises made of excise duty credits.

Apart from this, the agreement states that “in the event a new excise duty structure is introduced,” Malaysia will be required to disclose the process in a manner that “will be transparent and consistent with Malaysia’s commitments under the World Trade Organization (WTO) Agreement” and the TPPA. As such, all the “customised incentives” given to various manufacturers will have to be made public.

Thus Approved Permit (AP) system will no longer be applicable to vehicles originating from the US. The agreement also states that “Malaysia shall not apply any quantitative limit on the importation of originating new motor vehicles from the United States, including any limit applicable to vehicles that are subject an import licensing requirement.”

Well, it is sure that there will be some sort of price shift after this agreement, but how much, that is not yet known. Please comment your views below.