AP policy in doubt

by **Cals** Mon 27 Jan 2014, 02:06

Published: Saturday January 25, 2014 MYT 12:00:00 AM
Updated: Saturday January 25, 2014 MYT 7:57:13 AM
AP policy in doubt
BY CHOONG EN HAN
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Zainuddin: ‘It’s wrong to resell an AP. There is still abuse but I am not empowered to control this.’
MORE questions than answers have cropped up following the recent National Automotive Policy (NAP) announcement, now that the abolishment of the Approved Permits (APs) seems to have been put on the backburner pending an in-depth study after Chinese New Year.
International Trade and Industry Minister Datuk Seri Mustapa Mohamed said the complexity of issues surrounding the AP system were greater than the Government had expected and have to be look into extensively.
Those near exact words were used back in 2009, when he announced the delay in ending APs originally slated to end in 2010. Despite the complex nature of the issue, he stopped short of revealing what was the real reason for undertaking a new study on APs on Monday.
Back in 2010, the termination of the AP system was pushed to the end of 2015, starting with the abolishment of Open APs.
Malay Vehicle Importers and Traders Association (Pekema) has been steadfastly defending the continuation of the AP policy. They cite the loss of livelihood as one of the main detriments should Open APs be dispensed with.
Speaking to StarBizWeek, Pekema president Datuk Zainuddin Abd Rahman says AP holders are part of the automotive ecosystem as well, and to abolish this would have a disastrous multiplier effect.
“We have employees and also partners workshops, painters and spareparts dealers. It’s not just a bumiputra business as perceived. The negative perception towards AP holders are just overblown. With the duties paid and the levy on the AP, our profit hardly reaches RM10,000 for a car like Toyota Wish, and we have not deducted for our overheads yet,” he says.
According to him, AP holders have paid an AP levy to the tune of RM1.4bil since 2010.
He says AP holders are selected based on experience, and it is the only business that Industrial Trade and Industry Ministry (Miti) audits twice a year using external auditors.
“Some companies might have plan B but some who have been in this business all this time will struggle to look for another business. I started as a dealer for Tan Chong and I was one of the top bumiputra dealers for them in the 1980s. It was based on that record that I was granted APs,” he says.
On the underdeclaration of the value of cars to avoid high duties, he says such practice is no longer done as widely as before.
“It’s wrong to resell an AP. There is still abuse but I am not empowered to control this. For duties, we have set a framework with the Customs Department on fixed duties on specific imported cars, and it has since been based on that and not on your declared value. So there is no abuse for that,” he says.
Past reports indicated that the amount of APs given is capped at 10% of the number of locally-assembled cars in the preceding year, of which 60% of the total number of APs are given to bumiputra Open AP holders while the remaining 40% are given to franchise holders, the majority of which are bumiputera-owned.
There are now 100 companies that are being granted the right to purchase Open APs.
APs were first issued in the 1970s by Miti to encourage individuals to delve deeper into the automotive industry develop their own businesses, while by way, promote a healthy participation of bumiputra entrepreneurs in the automotive sector.
It was first thought out to be an import-control mechanism based on the Malaysian Customs Act 1967 but with globalisation, the Malaysian trade system needed a revamp to stay relevant.
Now, the AP system is said to be in contravention with World Trade Organisationrules and other trade agreements as it restricts international trade.
It is almost common knowledge that the AP system over the years have been subject to abuse and that has led to calls for it to be scrapped.
For cars, there are two types of APs issued by Miti: Franchise APs that are given out for free to franchise holders of car brands registered with Miti; and Open APs that are sold to parallel importers at RM10,000 a piece to import second hand cars of any brand. These Open APs were sold for a few ringgit before the Government slapped the RM10,000 levy during the 2010 Budget.
These open APs are deemed to be highly lucrative, as channel checks reveal that these permits are resold at a hefty sum of RM25,000 to RM40,000 per permit. Margins are believed to be even higher if the open AP holders import the cars themselves.
The AP system have helped entrepreneurs like Tan Sri Syed Azman Syed Ibrahimwho has grown his company, Weststar Group, which started as an importer of cars. He has since ventured into other industries, including aviation services for the oil and gas industry via his flagship entity Weststar Aviation Services Sdn Bhd.
With a fleet of 35 helicopters spanning from Malaysia to Mauritania, the company is the largest offshore aviation service provider in the region. It has also attracted the attention of global investment firm KKR & Co of the United States, which has invested about RM642mil in the company in October.
Meanwhile, the late Tan Sri SM Nasimuddin SM Amin and family have grown Naza to become a diversified group, with interest ranging from automotive to property development and food and beverage.
Besides bringing in high-performance luxury vehicles like Ferrari and Maserati, Naza also has factories and operations employing thousands of workers to assemble and distribute cars under international brands such as Kia and Peugeot.
But not all are happy about the policy continuing, as one franchise AP holder says the system is still fraught with abuses. The franchise AP holder lamented that the system is too loose and fragmented, and is compounded by bad implementation, enforcement and supervision.
“That leads to further abuse and getting tainted with negative perception. Countries like Singapore have the Certificate of Entitlement (COE) and is valid for seven years only. The COE is not cheap but the people accept it as the system is transparent, implemented and well enforced.
“We, franchise holders, have made a lot of investment but returns are not that lucrative. If you look at what the grey importers had invested, you would fall off your chair if their profit margins are revealed,” says a local franchise AP holder who declined to be named.