Tax exemption extension to boost car sales

The exemption, introduced in June 2020, was supposed to expire in December, but Putrajaya decided to extend until June 2021


PASSENGER car sales are expected to pick up within the next two months compared to the average selling figures in previous years, attributed to the sales tax exemptions extension.

Both analysts and industry players expect the automotive sector’s total industry volume (TIV) to be stronger this year driven by the short-term National Economic Recovery Plan (Penjana) scheme, with the trend likely to emerge as early as January.

Malaysia sold an average of 40,000 to 45,000 vehicles monthly in the past five years.

Honda Malaysia president and COO Sarly Adle Sarkum said the market is expected to respond positively towards the extension of the tax holiday. However, it is still unclear how sharp the uptick could be.

Sarly said this includes buyers who had previously opted not to purchase a vehicle due to the tax exemption’s expiry date, slated on Dec 31, 2020, before the government’s recent extension.

“Once January or February kicks in, we may see the market responding well to the tax breaks as there will also be a lot of forward buying customers from December 2020,” he told The Malaysian Reserve (TMR) in a text reply yesterday.

Sarly said buyers might have put forward their bookings if they knew the government would continue the tax discounts.

However, as the announcement came only two days before the expiry date, customers have adopted a wait-and-see approach to avoid the risk of being excluded from the tax exemption.

“We would see the sales will pick up, whether sharply or not, that is still in question,” he added.

Under the Penjana plan, buyers can enjoy a 100% sales tax exemption to purchase locally assembled vehicles and a 50% sales tax exemption to buy imported cars.

The plan, introduced in June 2020, was supposed to expire in December 2020 but Putrajaya on Dec 29, surprised the industry and decided to extend the plan until June 2021.

According to an industry observer, some buyers prefer to purchase cars in the first part of the year as they may enjoy a greater second-hand value, as buying a vehicle at year-end may impact the trade-in value.

Based on the dealership’s calendar, the car will be technically one year older. As vehicle values depreciate over time, buyers may be setting themselves up for a smaller credit toward their new vehicle purchase.

“This may see the trend of car sales change from buyers waiting for promotions at the end of the year, to a preference to buy cars within the next couple of months.

“The value that they may get at the end of the year may be hard to compensate for the tax exemptions that they would enjoy for these first six months,” said an industry observer.

In January and February 2020, Malaysia registered 40,403 and 42,652 worth of TIV respectively. To compare, the first two months in 2019 saw TIV of 48,450 and 39,839 respectively. In 2018, TIV for January was 44,560 and February was 40,563.

Kenanga Research analyst Wan Mustaqim Wan Ab Aziz said the depreciation value of cars is subjective and the trend will also depend on the company’s business strategies.

“It will also depend on new launches. But, I guess other things do not matter since there is a sales tax exemption and people will rush to buy, especially if there are new launches within the tax discount period,” he told TMR.

Proton Holdings Bhd is expected to rush in delivering its 60,000 outstanding bookings, half of which are derived from its most anticipated SUV, X50.

Sales and marketing VP Roslan Abdullah said the company will ensure these bookings are registered first, while continuously working to secure new customers.

In its report, Kenanga Research opined this positive surprise for automakers and consumers should prompt a buying frenzy over the next few months and relieve the backlogged bookings.

The research house anticipates a stronger recovery for the sector in 2021, with a TIV target of 585,000 units, a 17% increase year-on-year.

AmInvestment Bank Bhd forecasts the automotive sector’s TIV to be stronger in the second quarter of 2021 (2Q21) with the gradual lifting of lockdowns, reopening of borders and travel restrictions.

“We anticipate TIV sales volume in 2Q21 to be stronger with an average of 45,000 to 50,000 units per month.

“We believe the worst is over and there will be a gradual lifting of lockdowns, reopening of borders and travel restrictions which will improve businesses’ cashflows and reduce the disruptions to supply chains.

“This will spur the domestic economic recovery,” the report stated.

Read our earlier report

Tax incentive extension pushes auto stocks higher