Abolish auto AP to ease rakyat's pockets

Malaysian Reserve

4 days ago

Malaysia's household debt stood at RM1.53t (2023)…13.2% or RM201b consists of vehicle loans
SLIGHTLY over a decade ago, in a number of rooms around Putrajaya, groups of people were semi-forcibly huddled together to brainstorm ideas on how to provide financial relief for more than 29 million Malaysians facing an inflation crisis.
For the uninitiated — yes, those days governments did sit down to think of the people's predicaments. And yes, sit down and think they did. The implementation, however, well, that's a conversation for another cup of coffee.
So, there were many heads gathered in these rooms, called 'labs'. Some suggestions were radical, some were solid and some were downright logical.
One of the most common themes shared by these labs was the idea of liberalising the automobile sector. Specifically, to abolish the system of Approved Permits — aka APs — for the importation and sale of vehicles in the country.
These APs are making Malaysia one of the most expensive car markets in the world. And who will foot the bill? The rakyat of course — through import and excise duties.
Automobiles represent the second-largest source of debt after property investment among Malaysians. Malaysia's household debt stood at RM1.53 trillion at the end of 2023, representing 84.2% of the country's GDP. Of that, 13.2% — or RM201 billion — consists of vehicle loans.
It is an open secret that the AP system has enriched selected corporations and a small circle of privileged Bumiputera individuals. While the burden it places on the rakyat is enormous, while its spillover effect to the broader Bumiputera community has been minimal at best.
Most AP holders held their interests through private entities and built dynasties but not much anything else.
One became a billionaire, built an auto empire and sent his kids overseas for education. Kids came back, bickered over the inheritance and fractured the whole business.
One became smarter — built other ventures, notably in helicopters, partnered with a Zionist-linked private equity firm, became a billionaire, wised up even further, bought back equity and eventually became a philanthropist.
The government was reluctant to abolish the AP system, using tax return revenue as an excuse — a justification that was overwhelmingly pathetic, as the numbers proved insignificant compared to the ringgit that could have been returned to the rakyat.
Based on 2020 numbers, the government collected approximately RM2.35 billion in import duties, with completely built-up (CBU) motor vehicles contributing around RM404 million, or 17.2%. The same data revealed that the government also collected RM5.14 billion in excise duties on imported goods. If the same proportionate contribution is deduced, motor vehicles could have contributed an additional RM884 million.
For both import and excise duties, the automotive sector contributed approximately RM1.28 billion — all paid to the government.
If the AP system was abolished, what quantum would the benefits to the rakyat be? It would be difficult to flesh out the actual number, as there is no flat rate for either import duty or excise duties.
And the well-known fact that AP-holding car companies are profiteering ridiculously under the guise of tax only makes things more difficult.
However, one can make an estimation based on a purchase experience of a completely knocked down (CKD) model. For the purpose of calculation and financing, one CKD car owner inadvertently got hold of his vehicle's duties sheet — which clearly stated the actual cost of his brand-new car.
Its net price upon arriving at the port was RM18,000. Because his car has a 1,800cc engine, he had to pay an 80% excise duty and approximately 10% import duty, which brought the total cost to RM34,200 to take the car out from the port.
But he paid about RM78,000 for the car on the road — more than double (128%) of the actual cost.
Even then, if we maintain the same percentage of profiteering, abolishing the AP system and its related excise and import duties would reduce the nett cost by 90% to RM18,000. Even if the car seller wanted to retain the ridiculous 128% margin, the buyer would pay only RM41,040 — effectively saving a good RM36,960 or 47% off the actual purchase price.
Use the power of assumption on average variables, one could deduce that from the existing RM201 billion in vehicle loans, a good 47% — valued at RM94.5 billion — could be returned into the rakyat's pockets.
Lose RM1.28 billion from the Treasury to give RM94.5 billion to the rakyat — it would be a hands-down winner, wouldn't it?
We can endlessly speculate about how the public might react, but one thing is certain: No one would want to drive the car they bought at half the price to a downtown protest demanding the resignation of the person who abolished the burdensome motor tax.
No one.
Asuki Abas is the editor of The Malaysian Reserve.
This article first appeared in The Malaysian Reserve weekly print edition