THE Goods and Services Tax (GST) will be implemented with effect from April 1 2015, replacing Malaysia’s Sales tax (10%) and Service tax (6%).
With the introduction of the new tax system, many have speculated that car prices will drop, and that it would be better for buyers to wait before buying a new vehicle.
Industry players, on the other hand, say that car prices will not necessarily come down.
In this question-and-answer series, The Star talked to UMW Toyota Motor Sdn Bhd branch manager Richard Tan Hang Kok, 58, to gain an insight on this issue.
Tan joined the company in 1996, and has been in the local automotive industry for almost 20 years.
1. Based on the structure of GST, many assume that car prices will be cheaper. What do you think?
TAN: People are speculating based on the simple logic that because the current sales and services tax imposed for cars is 10%, and at first glance, this may look like there is a 4% reduction in price because GST is only 6%. However, bear in mind that vendors and suppliers are not subjected to taxes at the moment. When it comes to the GST system, the tax is applied to the entire production chain.
2. Why won’t prices be lower?
TAN: Referring back to what I said, this means that car assemblers are to be charged a 6% GST on the components they supply. Thus, when it comes to the end product, I foresee a very minimal difference in car prices this year and next year. Depending on the type of cars and components used, there will only be about 1% to 2% difference at the most.
3. Do you think this will affect car sales in the future?
TAN: I do not think that there will be a big impact since the price difference will be minimal.
4. What are your concerns for your business after GST is implemented?
TAN: Right after the implementation next year, I think there will be a gradual slow-down in the economy because people would probably buy the things they need or want in advance before implementation. They may be worried about the market being temporarily unstable due to the new tax system. But once the dust settles, in about one to three months, I am sure that the business momentum will pick up again.
5. Do you sell second-hand cars as well?
TAN: Yes, we have a used cars department under the company, called TopMark.
6. While some have speculated that car prices will be cheaper, sellers could suffer from higher depreciation as a result. How do you think this would affect the second-hand car dealers?
TAN: Currently, we are unsure if second-hand cars will be subjected to GST. In the event that it does, I think second-hand car sales would slow down because they will be selling for a slightly higher price due to the tax. For example, before GST, a second-hand car may cost RM50,000 but with the GST, the price might be increased to RM53,000.
Buyers might find this increase difficult to accept. However, second-hand car prices are usually determined by market demand. If demand drops, so will the original selling price. Sellers might be selling at a loss, thus causing a drastic impact to the market of pre-owned cars.
7. What is your advice for people who are currently planning to buy cars?
TAN: I strongly suggest that these people buy cars before GST is implemented.
This is because many car firms are offering good promotions right now. After GST is implemented, if it is true that car prices between this year and next year will not see much of a difference, I wager that it would probably be about more than RM1,000 difference at most. I have seen car sales promotion that offers a rebate that could go up to RM4,000, which I find to be more worthy instead. These promotions will not be offerred next year.
8. What about those who have plans to sell their cars?
TAN: I would also suggest that they do it now instead of waiting another year. There will be yearly price depreciation for used cars, and if you choose to wait, your car will be another year older, and the price you can sell your car for will be even lower.
There is also the concern of demand and supply like I mentioned earlier. It is a double effect in the market.
The used car market may soften next year, and with not much demand from the public, prices will be even lower, and you will be selling it at a loss.
9. What are the other implications that could affect the sales of new and second-hand cars when GST is implemented?
TAN: Everything is just as I have mentioned. Impact on the sales of new cars will be minimal but I cannot say the same for the second-hand car market. I would like to reiterate that buyers and sellers should buy and sell their cars now for better promotions and better trade-in prices respectively.
10. What are some of the measures you hope the Government will take to lower the financial burden of people based on your current GST-related fears?
TAN: I think the Government has taken a good move to exempt food, education, healthcare and fuel from being taxed. It is quite fair as basic necessities are needed by all groups of people, and I hope that they would continue with the exemption for as long as we are under the GST system.