Nuffnang Add

Monday, October 29, 2012

Gradual reduction of car prices needed

Publication: NSUNT
Date of publication: Oct 28, 2012
Section heading: Cars, Bikes & Trucks
Page number: 014

THERE was wide speculation before the recent budget that there would be some sort of gradual reduction of taxes on cars.

Such a move would have certainly proved very popular with the rakyat who have had to endure high car prices for more than a generation now.

Again, we were all disappointed when the government chose to ignore this matter, citing that it could not afford to do so in view of the loss in revenue involved.

Many of us had been hoping for such reforms when the Afta agreement came into force but somehow Malaysia managed to wriggle its way out of it.

Malaysians pay amongst the highest car prices in the world.

Some of us may remember the good old days (i.e. in the mid-80s) when you could get a Toyota Corolla or Honda Civic for about RM25,000.

Then came Proton. Car prices slowly moved up as a result of protectionism where in Malaysians were "forced" to buy the cheaper Malaysian cars as prices of foreign cars kept moving up.

In the early 1990s, the prices of Corollas and Civics rose to about RM50,000. By the mid-1990s, it was about RM80,000 and by 2000, it had breached RM100,000.

A 1.8 Corolla or Civic now costs about RM115,000. A similar car in Thailand is about RM20,000- RM 25,000 cheaper. It costs RM40,000 less in Langkawi.

Notwithstanding all the sacrifices we have had to endure over the last 25 years, our national car project is a failure.

Despite that, we are still saddled with high car prices as the government is unwilling or unable to reduce taxes on cars in Malaysia.

The simple reason is that we have a very inefficient system of tax collection in Malaysia wherein only 10 per cent of the working population pay taxes.

I joke with my friends that the only time most businessmen pay their share of taxes is when they buy their Mercedes.

Those of us who are salaried or honest enough to declare all our income are unfortunately saddled with double the taxes. First, in the form of income tax and then again through excise duties, import duties and sales taxes when we buy our cars.

For example, based on the comparison of car prices in tax-free Langkawi and Peninsular Malaysia, when someone buys a Honda City, he pays RM27,000 in taxes up front to the government in excise duties. If he gets a 2.0 Accord, he pays RM53,000 in taxes. (See Table for Comparison of Car Prices of Popular Japanese sedans in Peninsular Malaysia and Langkawi)

If he keeps his car for five years, he effectively pays between RM5,000 and RM10,000 in taxes a year and he doesn't even realise it.

Every year, more than half a million vehicles are sold in Malaysia and the government collects RM8 billion in excise duties.

On the other hand, the government spends RM40 billion on subsidies and more than half of that amount goes to fuel subsidies.

The government can offset the amount lost from excise duties by correspondingly reducing the fuel subsidy and improving public transport. GST too may be a necessary evil.

A reduction of prices is not going to result in a huge jump in the number of cars on the road as most buyers are constrained by the amount they have budgeted for transport, i.e. how much they can pay per month for the hire purchase installment, parking and fuel, etc.

People will just be able to get better cars for the same price or they will have more money in their pockets to buy other things and enjoy a better standard of living.

The government should also reduce the ma ximum period allowed for financing a car from the current nine to seven and ultimately five years as it was before prices of cars in Malaysia sky rocketed.

Maintenance cost for cars normally starts to increase after five years of ownership and use.

Therefore, anyone keeping their car beyond five years should ideally be debt free, so they can channel the money towards maintenance of their older car.

All this can be done gradually over a period of five years whilst the government improves the public transport throughout Malaysia.

The present system cannot be allowed to continue to remain indefinitely wherein taxes imposed on cars in Malaysia are just too much of a burden on all Malaysians.

Whichever party wins the next election,this issue cannot be ignored and the next five years will truly be a critical period in the direction our nation takes.

We need to look into a gradual reduction of prices in Malaysia so we can all enjoy a better standard of living.

Dominic Pillai