Fitch Solutions maintains higher vehicle sales forecast for 2021


FITCH Solutions Country Risk and Industry Research maintained its forecast of a 6.9% increase in total new vehicle sales in Malaysia for 2021 despite the reintroduction of the Movement Control Order (MCO 2.0).

The reimposition of the MCO is expected to be offset by the extension of the sales tax exemption on new vehicles for the year, which was introduced in July 2020.

“For the purpose of our forecast, we assume the likelihood that easing the restrictions will take longer than the predetermined two-week period.

“We maintain our forecast of a 6.9% increase in total vehicle sales in 2021, on the back of our 2020 estimate of a 15% decline, which would result in 2021 sales remaining below their 2019 pre-pandemic levels, reaching just under 550,000 units,” it stated in a recent report.

The closure of car dealerships under the previous MCO imposed in March last year saw Malaysia’s vehicle sales decline by 99.4% month-on-month (MoM) in April 2020 with only 141 vehicles sold during the period.

The sales drop in April was followed by a drastic increase in the subsequent month when the Conditional MCO commenced, allowing retailers to resume operations.

“In June 2020, the momentum in the sales recovery was sustained as sales posted a 94% increase MoM due to improving consumer and business sentiment as movement restrictions eased.

“This was followed by the introduction of tax exemptions in July 2020 when sales posted a 28.8% MoM increase ensuring that the positive momentum in sales was sustained,” Fitch Solutions noted.

The government introduced a 100% sales tax exemption on completely knocked-down (CKD) vehicles and a 50% tax exemption on completely built-up (CBU) vehicles in June last year under the short-term National Economic Recovery Plan.

The tax exemption was initially set to be in effect from June 15 until Dec 31, 2020, but has since been extended further by six months to June 30, 2021.

The sales tax for vehicles is typically set at 10% for both locally assembled and imported cars. The exemption meant that the sales tax is waived in full for locally assembled cars, while a 5% tax remains imposed for imported cars.

Fitch Solutions expects car sales to emulate last year’s recovery trend following the gradual easing of restrictions in May 2020.

“We also expect the vaccine roll-out, which will begin in February 2021 to support our view as sentiment levels improve from consumers and businesses leading to a resumption in vehicle purchases,” the research firm stated.

It added that the Customs Department has also delayed the introduction of excise duties on CBUs and CKDs.

“We believe these developments will create a conducive environment for vehicle sales growth in 2021 when movement restrictions are eased, as the increase in excise duties would have raised prices for vehicles.

“Thus, the combination of a delay in the introduction of duties and the extension of the sales tax exemption on vehicles will result in sales reaching our unchanged forecast for 2021,” it noted.