Malaysian National News Agency

How Govt Is Short-changed Through Under-declaration
July 20, 2005 11:53 AM
By Yong Soo Heong

KUALA LUMPUR, July 20 (Bernama) -- Malaysians do not just love cars, they are crazy about them, to the point of obsession. At any given time, they have more than 200 different models to choose from.

That explains why 380,568 new cars were sold last year compared 320,524 in 2003. And that even does not take into account sales of second-hand cars.

That also explains why the demand for APs or Approved Permits for the import of completely built-up foreign-made cars is ever so strong because of this craze for cars.

With the relatively low interest rates at around 2.5 percent per annum and the banks' propensity to lend to up nine years for car purchases, consumers are spoilt for choice these days.

Gone are the days when it is difficult to buy a new imported model cheaper than those from Proton or Perodua, the two pioneers in national cars or cars with a high level of local content.

Taking the top of the line Proton Perdana as the yardstick at around RM100,000, one could get a number of imports below this price. They include the Kia Picanto, Suzuki Swift, Suzuki APV, Chevrolet Aveo and Chevrolet Optra.

That means that Proton and Perodua can no longer compete on price or even patriotism these days.

But how are importers able to charge competitively and yet make a tidy profit when there is a 300 percent import duty slapped on such imports?

There have been allegations that some importers may not have been quite straight-forward with their price declaration.

That probably accounts for the unbelievably low prices of some imports in the local market.

For instance, some people are also asking as to why it is such a hassle for individuals to secure an AP to import a car while some parties are given so many APs to flood the market with imports?

The Malaysian Institute of Economic Research (MIER) said the fact there was controversy over the award of APs showed that "something is wrong with the system."

Another issue related to transparency is the reluctance of many car dealerships in showing a detailed breakdown of the taxes paid to the government for CBUs. Most of their price lists would only indicate the "net selling price inclusive of government duties."

The AP system, which was introduced some 30 years ago to help bumiputera entrepreneurs in the car industry, has come into greater scrutiny these days after allegations that the flood of relatively cheap car imports had hurt Proton.

Proton's market share for passenger cars slipped to 44 percent or 166,833 units in 2004 compared 48 percent or 155,420 units in 2003.

Former Prime Minister Tun Dr Mahathir Mohamad, who is now Proton adviser, had also alleged that many importers were under-declaring and selling cars at a price that was lower than the actual price.

Meanwhile, an industry insider alleged that under-declaration was not only confined to re-conditioned vehicles from abroad but also in transactions for new vehicles with the principle car manufacturers.

As a result, millions of ringgit due to the government in taxes were lost, she claimed.

The source, who is associated with a foreign car manufacturer, revealed that some importers had gone to the extent of minimising their exposure on government taxes by splitting their purchase orders twice.

This is how it is done: The importer will send a purchase order for, say, 20 cars, to the exporter or foreign car manufacturer and will include payment for a sum equivalent to only half the price of the cars concerned.

Once the cars are ready to be shipped out, he then makes the balance of the payment.

The source said the exporter would then invoice the importer and the paperwork for Customs declaration would be based on the second payment. In other words, payment is split.

"This means that the so-called selling price to be declared to the Customs would be based on only half of the actual price of the cars," she said.

The invoice used for the Customs declaration would also include fictitious payments purported to have been made by the importer running to several thousands of ringgit per car as the manufacturer is supposed to send personnel to Malaysia to oversee the technical aspects of the after-sales service of the vehicles, the source said.

"Government taxes will thus be based on the discounted price and not on the actual value of the cars and hence the government gets shortchanged through such under-declaration," she explained.

Meanwhile, a port official said it is ironic that it took so long for the authorities to realise such racketeering.

"This is rather interesting. When you bring in a car individually from abroad, the Customs officers will often know in detail the price of the car, the incidence of tax and you can't bluff your way through. But when it comes to large-scale imports, there seems to be some fuzziness and some people can get away with under-declaration. Something is wrong somewhere," he said.

Of late, photocopies of APs purported to show that some German-made limousines had been imported at only RM3,000 each had been circulated. It has been reported that the Royal Customs Department is investigating the alleged under-declaration.

A new phenomenon has also cropped up: Malaysia is now flooded with foreign-made cars which are said to be specially-tuned.

These "sub-branded" cars were unheard of about a year ago but are now promoted along with established brandnames from Germany and Japan.

A car sales executive said it is interesting that some dealers are making a fortune from these specially-tuned vehicles.

"By just changing a computer chip to enable the cars to have higher revs or more power, putting a new set up bumpers and placing new badges of the sub-brands alongside the original names, the dealers can charge up to RM30,000 to RM40,000 more per car," he said.


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