KUALA LUMPUR: The abolishment of Multi Sourcing Policy (MSP), a scheme aimed to encourage CKD (completely knocked down) operation in Malaysia, requires proper monitoring and management as the restructuring of import duties may impact pricing of some car brands.
The MSP, which was introduced in October 1993, is slated for a new treatment under the National Automotive Policy 2020 (NAP2020) by 2021, to be replaced and absorbed in the customised incentives model.
Malaysia Automotive, Robotics and IoT Institute (MARii) chief executive officer Datuk Madani Sahari said the impact could be felt within original equipment manufacturers (OEMs) who have had a long-term reliance on the MSP duty structure.
“The government, through the Automotive Business Development Committee (ABDC) is working closely with manufacturers to ensure industry players are able to gradually transition and restructure their procurement models to maximise the utility of the customised incentives under the NAP2020,” he told the New Straits Times recently.
He said the Finance Ministry had stated that OEMs must adhere to audit reviews and stipulated policies on duty exemptions.
Through the NAP2020, he said the customised incentives mechanism has been further broadened, covering a wider range of value added activities that include new components and services within the mobility sector.
“Due to these developments, the MSP is seen to become less relevant to the current scenario of industry development,” he added.
Madani said the abolishment of MSP would encourage local souring and utilisation of Free Trade Agreement (FTA) that Malaysia has signed with various countries around the world, through the organisation of trade missions and programmes.
According to Malaysia External Trade Development Corp (MATRADE), FTA offers lower or zero tariff (tariff concession) on exports and imports of goods and components assigned under FTA.
This would, in turn, make products more competitive, as compared to exports and imports from non-FTA partner countries.
FTA also offers more relaxed or removal of quantitative import restrictions, hassle-free custom procedures and thus improve market access for various services.
Under the NAP2020, the government aims to enhance value chain competitiveness in the pursuit of high-quality products that meet the standards of vehicles manufacturers and consumer needs.
The local automotive players should focus on expanding their market including companies in the aftersales and services sector as well as parts and components (P&C).
In essence, the introduction of tax incentives for full CKD operations meant that more value-added activities would take place in Malaysia.
“Traditionally, CKD packs were imported from a single source, but as the industry progressed, trends have changed - in which assemblers imported their components from multiple sources. Under the MSP, components imported would be taxed at CKD rates,” Madani said.
The concept of MSP was introduced to allow for the importation of parts and components (P&C), limited for CKD purposes.
However, he said challenges arose in cases where importation of P&C was done for the replacement market, creating leakages in government revenue and slowing down of P&C technology development and businesses within suppliers.