Lower car prices expected, quantum depends on models and companies

Automakers are expected to announce their revised sales price of cars over the next several weeks, says expert


CAR prices are expected to be lowered as the government sets to spur the local automotive sector following an incentive announcement last week.

Prime Minister (PM) Tan Sri Muhyiddin Yassin announced a full sales tax exemption on locally assembled passenger cars and a 50% sales tax exemption for imported passenger cars for the period of June 15 to Dec 31, 2020.

The tax incentive, which is a part of the government’s short-term National Economic Recovery Plan, was lauded by the industry, but it cautioned buyers not to expect car prices to come down too much.

Malaysian Automotive Association president Datuk Aishah Ahmad said a reduction in car prices is expected, but it will be in the lower single digits.

“During the Goods and Services Tax (GST) period when the 6% GST was removed, there was about a 3% to 4% drop in car prices.

“Now, this is 10% Sales and Services Tax (SST). It could be a little more than that, but it will not be a 10% drop because there is a lot of formula to calculate sales tax.

“The amount will be lower than the 10%, maybe about 5% to 6%, but (it) varies with models. Let the car companies announce what the savings in terms of zero sales tax are for completely knocked-down (cars) (CKD),” she told The Malaysian Reserve recently.

CKD is referred to as cars that are assembled together at a local manufacturing facility, where they can then qualify for the government’s incentives and exemptions on excise duties — translating to a lower car price.

Aishah added that the government will incur losses on the sales tax quantum, but if more vehicles are sold, the government will gain more income from the import and excise duties from the higher total industry volume (TIV).

“Gainers are the customers, the loser is the government because they are not taking tax. But they (the government) know they have to do it in this situation to encourage people to buy cars.

“For the auto companies, I believe they will offer a lot of discounts. On top of the sales tax exemption, they will also be providing discounts and others too to attract more customers to purchase cars,” she said.

The automotive sector saw 198,518 vehicles sold during a three-month tax holiday period in 2018, up 32% or almost 48,000 more units compared to June-August 2017, as consumers locked on the opportunities of not paying the 6% GST.

Following the announcement, Aishah believes the TIV will be better from what the association has earlier forecast which was at 400,000 this year.

“There will be an improvement, but how much is still too early to tell. The Movement Control Order has impacted most of us.

“Who is going to invest in cars unless they really have the money. While there are still some challenges, we are optimistic that the announcement made by the PM is expected to alleviate the pressure on car/auto players.

“We are under pressure as banks are tightening hire purchase loans. The quantum is lower, they are scrutinising it. And because of the moratorium, most of the small banks don’t have much liquidity,” she added.

Proton Edar Dealers Association Malaysia president Liew Vee Lee echoed Aishah’s sentiment, saying that the reduction of car prices will depend on the companies and models.

“Automakers will now have to study the market, whether they want to throw away the sales tax or on top of that, throw some discounts and even declare new prices. This is because there is a lot of false information out there and you cannot calculate based on percentage. It is wrong.

“Every car, the sales tax is dependent on the local content which is very important on this, whether it has the energy-efficient vehicles status or not, and a lot of other complicated calculations.

“We also don’t know how it is calculated. We can only see the excise duty and not the sales tax,” he said.

Liew added that automakers are expected to announce their revised sales price of cars over the next several weeks.

Lee said there has been a surge of customer queries immediately after the tax exemptions were announced.

Meanwhile, Perusahaan Otomobil Kedua Sdn Bhd announced yesterday it will reduce prices (on-the-road excluding insurance) by between 3% and 6% via cash rebates until June 14, 2020, and will incorporate the new prices throughout the tax reduction period as recently announced.

“Despite the tax reduction only becoming effective June 15, 2020, Perodua will offer cash rebates between 3% and 6% for the purchase of our vehicles beginning today,” Perodua president and CEO Datuk Zainal Abidin Ahmad said in a statement yesterday.