Analysts: Tax holiday boost to car sales won’t last


  • Business
  • Monday, 25 Jun 2018

Customers at a Perodua showroom. Filepic.

PETALING JAYA: After four consecutive months of dwindling vehicle sales, the total industry volume (TIV) looks set to get a boost over the next two or three months from the “tax holiday” following the zero-rating of the Goods and Services Tax (GST) from June 1.

“Statistically, the second quarter of 2018 should be one of the best three months in a long time for the automotive sector,” said an analyst from a local bank-backed brokerage.

While this is great for the local automotive sector, the big question on everyone’s minds is whether the expected vehicle sales surge will last beyond Sept 1 – which is when the sales and services tax (SST) makes its return.

An automotive analysts said he expects vehicle sales to start slowing down even before SST kicks in. “With car prices dropping, spurred by the tax holiday, we do expect a surge in sales in June, and maybe even in July.

“However, come August, there could already be some slowdown, because registrations of the cars may only take place in September or beyond that - when SST has already kicked in.”

According to him, customers can take advantage of the tax holiday only if the car is registered within the tax holiday period.

“You can book a car within the tax holiday period - but if the car is delivered and registered once SST has been implemented, then you will have to purchase the car inclusive of the SST.”

Many car companies were quick to announce their zero-rated GST prices and savings for car buyers following the announcement by the new Pakatan Harapan Government that it was going to reduce the 6% GST to 0%.

“Those that booked their cars early will have a higher chance of receiving ownership within the tax holiday period - and register their vehicles with 0% GST prices.

“For companies to take advantage of the tax holiday – they would need to ensure that their customers can take delivery of the vehicle within zero-GST period,” says the analyst.

According to reports, Perodua is offering GST rebates of RM2,172 for a 1.0-litre Axia SE (auto) and RM3,114 for the best-selling 1.5-litre Myvi Advance.

Also, Perodua will fully reimburse the GST amount in cash to those who buy a new Perodua car, service their cars or buy parts between May 18 and 31, 2018.

According to an industry source, while many auto players recorded lower sales in May as customers held back their purchases till June (to purchase new vehicles without GST charges), Perodua’s move to offer rebates attracted buyers “in droves” to their showrooms.

“The company saw its market share jump to 51% last month – its highest ever,” said the source.

Last month, Finance Minister Lim Guan Eng announced that the SST rate would be set at 10%, which is the same rate when it was replaced by GST in April 2015.

When GST was introduced three years ago, overall car prices did drop a little. Speculation is that car prices may be a little bit more expensive once SST is introduced. “Perhaps the Government could increase the tax holiday period,” suggested one industry observer.

If that doesn’t happen, it might be possible for car companies to absorb the SST cost temporarily to continue attracting buyers and drive sales.

While this might look good on paper, it might not be feasible for car companies with high monthly volume sales, said one analyst.

“For a car company like Perodua that sells between 15,000 and 20,000 cars per month, absorbing SST on that many units can be costly. The only thing to do is to ensure quick delivery – which might be difficult when bookings are going through the roof.

“Sometimes, that’s not always a good problem to have.”


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