Tax incentive extension pushes auto stocks higher

Bursa Malaysia has only seen 6 IPOs across the ACE Market and LEAP Market YTD (Pic by Muhd Amin Naharul/TMR)

by RAHIMI YUNUS / pic by MUHD AMIN NAHARUL

THE government has agreed to extend the sales tax exemption for passenger cars for six more months until June 30, 2021, as part of the Short-Term Economic Recovery Plan or Penjana.

Finance Minister Tengku Datuk Seri Zafrul Tengku Abdul Aziz has approved the sales tax extension, which grants 100% tax exemption to completely knocked-down passenger cars and 50% to completely built-up units including imported used vehicles, according to a letter by the Treasury.

The document states that the tax incentive is in line with the provisions under Section 35(3) of the Sales Tax Act 2018.

Automotive stocks climbed yesterday, believed to have been driven by rumours on the sales tax exemption continuation although no official statement was released during trading hours.

Shares of DRB-Hicom Bhd rose 6.97% or 14 sen to end at RM2.15, UMW Holdings Bhd gained 5.26% to RM3.40 and Bermaz Auto Bhd added 4.32% to RM1.45. MBM Resources Bhd also increased 3.61% to close at RM3.44 yesterday.

Kenanga Investment Bank Research analyst Wan Mustaqim Wan Ab Aziz said the sales tax exemption would help relieve backlogs of orders in the industry.

“It is a positive surprise for automakers and consumers. The sales tax extension is positive to support sales momentum in the first half of 2021 (1H21),” Wan Mustaqim told The Malaysian Reserve (TMR).

He said automotive sales in 2H21 could be slower, but new launches are set to cushion the impact.

An industry source said the tax incentive would spur demand and push the total industry volume (TIV) to 600,000-unit level next year.

“The automotive industry employs 700,000 workforces and generates RM40 billion in the economy. The extension of the sales tax exemption shows that the government listens to industry players,” the source told TMR.

The source said, however, automotive players must be mindful that the Covid-19 pandemic is not over yet and hence must be steadfast in following the standard operating procedures to ensure no disruptions in the supply chain.

The sales tax exemption, which took effect from June till December this year, led to a price reduction in new vehicles in the range of 5% and 2% to 4% for used cars.

Car demand rose as consumers wanted to get discounts, but automakers are experiencing supply chain disruptions due to the Conditional Movement Control Order.

The TIV increased by 7.4% to 56,489 units in November compared to 52,584 vehicles a year ago, according to Malaysian Automotive Association (MAA) data.

As of November this year, 454,708 vehicles have been delivered in the local market, just 15,292 units more needed to hit MAA’s forecast of 470,000.