Rising costs may dilute SST exemptions benefits for car buyers

Persisting global chip crunch threatens to defeat the sales tax incentive objective, says industry expert


CARMAKERS expect sales to increase driven by the extension of the sales tax exemption period as announced by the government in the latest stimulus package Pemerkasa+ (Strategic Programme to Empower the People and Economy Plus) on Monday.

The global chip shortage and rising commodity prices in steel, aluminium and copper could dent sales growth as production faces challenges.

Malaysian Automotive Association (MAA) president Datuk Aishah Ahmad said extension of the sales tax incentives for locally made and imported vehicles until the end-December would help boost deliveries in the second half of the year, especially to recover from anticipated lower sales in June due to the nationwide lockdown.

She said it is still too early to determine if the total industry volume (TIV) of 570,000 units, as forecast by MAA for 2021, will be revised due to the government move.

Aishah said MAA would announce any changes to the forecast in mid-July after gathering inputs from industry players.

Prime Minister Tan Sri Muhyiddin Yassin announced a RM40 billion fresh financial assistance to cushion the impact of the Movement Control Order 3.0+.

Under the Pemerkasa+, the government has extended the Sales and Services Tax (SST) exemption for completely knocked-down vehicles at zero rate and completely built-up units at 50% until Dec 31, 2021.

Aishah said the extension would give more time for carmakers to fulfil orders with the promised benefits of the tax waiver amid outstanding bookings that stretched to four months for certain models.

Car buyers would have missed the tax incentives should the SST exemptions end on June 30.

One industry player said the persisting global chip crunch threatens to defeat the sales tax incentive objectives.

“There was no chip supply problem last year, and the sales tax exemptions proved to be effective in boosting the volume.

“This year is different. There could be no shortage of demand, but the bottleneck is the supply. Customers want to buy cars, but the original equipment manufacturers (OEMs) are concerned they might not be able to produce as much,” the industry executive told The Malaysian Reserve (TMR) on condition of anonymity.

The source said there is a new challenge this year — high commodity prices.

The automotive leader said OEMs are under pressure to manage cost, especially on steel.

“Would carmakers pass the additional cost to customers? If so, the SST exemption benefits would be diluted,” the source added.

The seasoned automotive executive said industry players would need to consider three factors this year: Lockdown duration, chips availability and commodity prices.

Amid this scenario, the SST exemption extension provides a level of certainty and relief to OEMs to plan their production better and assures customers they can enjoy cheaper car prices until year-end.

Malaysia Automotive, Robotics and IoT Institute (MARii) CEO Datuk Madani Sahari said the extension would greatly help the industry maintain its supply performance.

He said the move eases pressure on manufacturers to meet production deadlines and allow consumers to purchase vehicles at the incentivised price.

“With the looming pandemic and lockdown, MARii believes the SST extension is the fairest solution to keep the automotive sector sustainable while we balance lives and livelihoods throughout the pandemic,” Madani told TMR.

He said the tax incentives provide an ample time for organisations to transform towards mobility-based businesses via purchasing vehicles at a discounted price.

MIDF Amanah Investment Bank Bhd analyst Hafriz Hezry said the extension provides needed room to deliver up to four months’ order backlog and boost bookings post-lockdown period.

“Coupled with a low interest-rate environment and a relatively stronger ringgit (year-on-year [YoY]), sector earnings recovery underpinned; we see further upside to our current 2021 forecast TIV of 550,000 (+4%YoY),” Hafriz wrote yesterday.

The research house reaffirmed a ‘Positive’ stance on automotive with a ‘Buy’ call on UMW Holdings Bhd at a target price (TP) of RM4.30; MBM Resources Bhd (‘Buy’, TP: RM4.20); and Bermaz Auto Bhd (‘Buy’, TP: RM1.70).