Summary
Unveiling the Impact: CBU Car Prices Surge in Malaysia Following Revised Tax Calculations explores the significant changes in Malaysia’s automotive taxation framework that have led to notable price increases for completely built-up (CBU) imported vehicles. Initiated by the Malaysian Ministry of Finance under the Excise Regulations (Determination of the Value of Locally Manufactured Goods for the Purpose of Imposing Excise Duty) 2019, which took effect on January 1, 2020, the revised tax calculation shifted the excise duty basis from ex-factory prices to the open market value (OMV) of vehicles. While this revision primarily affected locally assembled completely knocked down (CKD) vehicles by increasing their taxable value and excise duties, it also influenced the pricing dynamics of CBU vehicles, intensifying debates on tax fairness and market competitiveness.
The new tax framework imposes multiple layers of taxation—import duty (30%), excise duty (60% to 105%), and sales tax (10%)—on vehicle prices calculated based on OMV for CKD cars and cost, insurance, and freight (CIF) value for CBU vehicles. This recalibration has led to price hikes estimated between 10% and 30% for CKD models and a generally upward pressure on CBU vehicle prices, although the latter’s excise duty rates remain unchanged. The resulting narrowing of the price gap between locally assembled and imported cars has raised concerns among manufacturers and consumers alike, with potential implications for local automotive production, employment, and consumer affordability.
The government’s phased enforcement of the revised tax rules, with extensions granted until December 31, 2025, reflects efforts to balance industry adaptation with fiscal objectives. Concurrently, policies supporting electric vehicle (EV) adoption, including duty exemptions for fully imported and locally assembled EVs, highlight a strategic push towards sustainable mobility despite ongoing tax disputes. Public and industry reactions have been mixed, featuring criticism over increased vehicle costs amid insufficient public transportation infrastructure and concerns over the possible decline of local manufacturing due to shifting economic incentives.
This evolving tax landscape exists within Malaysia’s unique automotive market dominated by Proton and Perodua, two government-supported local manufacturers benefiting from protective trade barriers and incentives. The combination of high vehicle taxes, changing valuation methods, and competitive pressures from foreign imports, especially in the growing EV segment, continues to shape Malaysia’s automotive industry outlook, underscoring complex trade-offs between government revenue, industrial policy, and consumer impact.
Background
In early 2020, the Malaysian Ministry of Finance introduced revised excise tax regulations aimed at recalculating the value of locally manufactured goods for excise duty purposes. This revision, formalized under P.U.(A) 402/2019 — Excise Regulations (Determination of the Value of Locally Manufactured Goods for the Purpose of Imposing Excise Duty) 2019 — came into effect on January 1, 2020, and specifically impacted the automotive industry by changing the method of determining vehicle value for taxation. Under the new framework, completely-knocked-down (CKD) vehicles became subject to higher taxable bases, as excise duty was levied on the open market value (OMV) rather than the previous ex-factory price method, which was considered more equitable by some stakeholders.
This regulatory change resulted in notable price adjustments for CKD vehicles, with excise duties increasing in line with the higher declared OMV, consequently raising final car prices. Conversely, fully-imported completely-built-up (CBU) vehicles continued to be taxed based on the vehicle itself without additional valuation adjustments, maintaining a disparity between CKD and CBU tax treatments. However, the overall pricing landscape shifted as both imported and locally assembled cars experienced price hikes due to these taxation modifications and the National Automotive Policy’s revised tax rates.
The government granted a series of extensions to the auto industry’s compliance timeline, with the third and final extension announced in December 2024. This extension allowed the industry additional time to adapt but confirmed no further postponements would be granted beyond December 31, 2025. Alongside these changes, electric vehicle (EV) policies have also evolved, including the extension of import duty and excise duty exemptions for fully imported EVs to encourage adoption, although disparities in tax burdens between different socioeconomic groups have been a subject of public debate.
These regulatory adjustments, combined with Malaysia’s automotive market structure—dominated by two major local manufacturers benefiting from government support and trade barriers—have shaped the pricing and availability of vehicles in the country. Many locally assembled vehicles benefit from government incentives and tax reliefs, making them more affordable compared to imported CBUs, which face higher cost, insurance, and freight (CIF) prices plus significant taxes. The complexity of the tax framework and its evolving nature require continuous monitoring and professional guidance for accurate calculation and compliance within the industry.
Revised Tax Calculations
The revised tax calculations for Completely Knocked Down (CKD) vehicles in Malaysia were introduced under the Excise (Determination of Value of Locally Manufactured Goods for the Purpose of Levying Excise Duty) Regulations 2019, gazetted on December 31, 2019. These regulations shifted the basis for excise duty calculation from the traditional ex-factory price to the open market value (OMV) of the vehicle, effectively increasing the taxable base and resulting in higher excise duties for locally assembled cars.
Under the current system, excise duty is levied on the vehicle’s OMV, with the excise rates themselves remaining unchanged. However, since the OMV has increased due to the new valuation method, the total excise duty payable has risen, which in turn raises the final retail price of CKD vehicles. This contrasts with Completely Built-Up (CBU) vehicles, which continue to be taxed based on the vehicle itself without additional valuation adjustments, leading to disparities between locally assembled and fully imported cars.
Malaysia’s tax structure includes several layers: import duty at 30% based on the vehicle’s Free on Board (FOB) price upon arrival, excise duty ranging from 60% to 105% depending on the vehicle’s powertrain, and a sales tax of 10% applied on the Government Approved Selling Price (GASP). The GASP comprises the OMV for CKD vehicles and the Cost, Insurance, and Freight (CIF) price for CBU vehicles, inclusive of associated import and excise duties.
Historically, new car pricing was based on docket pricing, whereby tax applications remained fixed for a specific model until it underwent a change. All taxes—import duty, excise duty, and sales tax—were paid according to prices gazetted by the government (warta kerajaan). Professional guidance is often sought by businesses to accurately calculate and pay these duties to minimize the risk of overpayment.
The implementation of the revised excise duty regulations has faced several extensions due to the adverse effects of the COVID-19 pandemic on the automotive industry. Initially slated to commence on January 1, 2020, the enforcement was deferred multiple times, with the latest extension granted until December 31, 2025. The Ministry of Finance has indicated that this will be the final extension, signaling the full adoption of the revised tax framework moving forward.
Industry estimates suggest a price increase ranging from 10% to 30% for locally assembled vehicles due to the increased tax burden resulting from the elevated OMV basis, substantially influencing Malaysia’s automotive market pricing landscape.
Impact on CBU Car Prices
The revised tax calculation method imposed by the Malaysian government has led to an anticipated increase in prices of fully imported (completely built-up, CBU) vehicles. Unlike CKD cars, which benefit from government incentives and tax reliefs, CBU vehicles are taxed based on their Cost, Insurance, and Freight (CIF) value, with import duty, excise duty, and sales tax applied accordingly. The previously gazetted pricing system was abolished, replaced by a transacted value method that assesses taxes on each individual vehicle unit.
Car companies, especially those dealing in lower-volume CBU models, face increased costs due to customs clearance and compounded taxes. The magnitude of price increases varies depending on vehicle model and currency exchange rates used by different brands. Earlier Malaysian Customs memos indicated price increases for CBU vehicles took effect from January 1, 2020, although these rises were expected to be less pronounced compared to the 15 to 25 percent increase projected for locally assembled models at that time.
Despite higher taxes on CBU vehicles, the excise duty rate itself remains unchanged and continues to be levied on the vehicle’s OMV. The change in valuation method increases the base price, raising excise duty and final retail prices. Some industry insiders argue that taxing based on ex-factory prices was more equitable and that the current system results in a degree of double taxation since manufacturers also pay corporate income tax on profits.
The widening price gap between CKD and CBU vehicles due to revised duties could influence foreign automotive players’ strategic decisions. If locally assembled cars’ prices rise by as much as 30%, the cost advantage of CKD vehicles might diminish, potentially prompting manufacturers to favor importing fully built-up units over investing in local production. Such a shift could have long-term consequences, including job losses and reduced local manufacturing activity.
Currently, CBU cars generally remain more expensive than CKD counterparts; for example, the CBU Mercedes-AMG C300 was launched at RM344,888, significantly higher than locally assembled alternatives. These policy changes and price increases highlight a complex trade-off between government revenue gains from taxes and the sustainability of local automotive manufacturing and sales volume growth, which reached a record 816,747 units in 2024.
Market Response
The revised tax system, replacing fixed gazetted pricing with a transacted value approach based on FOB price, has generated significant reactions from automotive stakeholders. This change affects import duty, excise duty, and sales tax, causing fluctuating vehicle prices depending on exchange rates and other factors.
Fully imported (CBU) vehicle sellers, especially those handling lower-volume models, have been most affected. Customs clearance and tax payments are now calculated per individual unit using transacted value, leading to variable and often increased costs. The excise duty ranges from 60% to 105% depending on powertrain, compounded by a 30% import duty and 10% sales tax, contributing to higher retail prices.
Concerns exist over the potential narrowing of the price gap between CKD and CBU vehicles. Traditionally, CBU cars have been more expensive due to higher taxes, but locally assembled cars facing up to 30% price hikes may lead foreign automakers to reconsider local manufacturing in favor of imports, threatening CKD assembly plants, jobs, and Malaysia’s automotive manufacturing sector.
Criticism from consumers and industry observers argues that raising car prices through taxation is not an effective solution to issues like traffic congestion. Many advocate improving public transportation and infrastructure instead of burdening buyers with higher vehicle costs.
Despite price increases, new motor vehicle sales in Malaysia grew 2.1% year-on-year in 2024, reaching a record 816,747 units, indicating sustained demand amid changing tax landscapes. Market dynamics remain sensitive to currency fluctuations, tax policies, and the balance between CKD and CBU offerings.
A Special Refund scheme exists, allowing sales tax paid on vehicles held in stock by licensed manufacturers or importers to be refunded under certain conditions, partially easing the burden on CKD and CBU players managing inventories under the new regime.
Economic Implications
The revision of OMV excise duty calculations has raised significant concerns, particularly impacting prices of fully imported (CBU) cars. Abolishing fixed gazetted pricing and adopting a transacted value system introduced variability based on FOB price, currency rates, and taxes: import duty (30%), excise duty (60%–105% depending on powertrain), and sales tax (10%). This has caused notable price increases for CBU cars, disproportionately affecting lower-volume models due to per-unit customs and tax calculations.
The spike in CBU prices raises concerns about the broader economic impact on Malaysia’s automotive industry, heavily reliant on two dominant local manufacturers, Proton and Perodua, supported by government policies and trade barriers. A potential 30% increase in locally assembled vehicles could discourage OEMs from local production in favor of CBU imports, leading to job losses and reduced industrial activity. Although higher taxes may initially boost government revenues, there is risk of damaging industry momentum, which saw record 2024 sales.
Market analysts remain neutral despite tax revisions, citing resilient demand supported by favorable income policies. However, risks include global supply chain disruptions, rising living costs, and competition from Chinese manufacturers, especially in the EV segment where price wars are prevalent. These pressures alongside tax changes may influence consumer behavior, vehicle sales, and Malaysia’s automotive market dynamics and economic growth linked to the sector.
Government and Public Reactions
The Malaysian government, particularly the Ministry of Finance (MoF), has addressed controversy over the revised OMV excise duties affecting CKD car prices. The Excise (Determination of Value of Locally Manufactured Goods for the Purpose of Levying Excise Duty) Regulations 2019, effective December 31, 2019, led to concerns of 10-30% price increases for CKD vehicles. The government deferred implementation until January 2026 in response to industry and consumer apprehension.
The government seeks to balance tax revenue generation with sustaining the local automotive industry, a significant contributor to Malaysia’s economy and employment. While higher taxes may boost short-term income, large price hikes could discourage local production, leading OEMs to prefer CBU imports, potentially undermining local factories and jobs.
Public reaction has been mixed but largely critical, with stakeholders concerned that higher car prices may dampen sales momentum, despite record 2024 sales. Critics argue that raising vehicle prices through taxation is counterproductive, especially with insufficient public transport infrastructure. They warn that higher costs could hamper mobility and jeopardize automotive sector employment. The disparity in tax treatment between new locally assembled cars and grey import vehicles has also raised fairness and policy consistency questions.
The local automotive industry, dominated by Proton and Perodua and protected by the National Car Policy through trade barriers and excise duties, continues to benefit from government support. However, these high vehicle taxes have contributed to the relatively high cost of foreign-made vehicles in Malaysia, fueling ongoing debate about balancing local manufacturer protection with consumer affordability and market competitiveness.
Future Outlook
The Malaysian automotive industry is navigating a complex landscape shaped by revised excise duty regulations and evolving government policies, expected to significantly influence market dynamics. Excise duty exemptions for fully imported (CBU) electric vehicles have been extended until December 31, 2025, and for locally assembled (CKD) EVs until December 31, 2027, reflecting government efforts to promote EV adoption and a shift toward greener alternatives.
However, the revised excise duty structure, with its final enforcement deadline in December 2025, poses challenges for manufacturers and consumers. The Malaysian Automotive Association (MAA) indicates locally assembled vehicles may face 10% to 30% price increases due to the new OMV-based tax calculations, potentially narrowing the cost difference between CKD and CBU vehicles. This may incentivize foreign manufacturers to favor importing fully built units over local production.
Malaysia’s automotive market, dominated by Proton and Perodua benefiting from protective trade policies and high excise duties on imports, could see reshaped competitive dynamics if price gaps diminish. Moderate industry volume growth continues, with 2025 sales at 41% of the forecasted 780,000 units, slightly down from the previous year. Record 2024 sales of 816,747 units suggest market resilience but potential shifts in consumer preferences if locally assembled car prices rise significantly.
