Will car prices go up or down?

KUALA LUMPUR: There has been a buzz that car prices will come down with the introduction of the Goods and Services Tax (GST) as the rate is lower than the current Sales and Services Tax (SST).

Customs Department director of GST Datuk Subromaniam Tholasy said based on computation after taking into account the distribution margin, the price of cars is still expected to be “slightly lower” under the GST, although the difference between the GST and SST is “not a full 4% and is much less”.

“The car industry has become very efficient and competitive over the years. Tax is just one factor.

“The manufacturers should reduce the prices if the production cost is lower due to lower raw material and component prices,” he said.

The prices of steel and raw materials have started to come down recently in tandem with lower oil prices.

However, Malaysia Automotive Association president Datuk Aishah Ahmad said car prices might actually go up instead of coming down.

 

She said during the interim period when the GST kicks in, customers might end up paying double taxation for their cars.

This is because car companies had already paid 10% in SST for cars they bought before April, and those that bought the cars from a distributor or a non-licensed manufacturer can only claim back 20% of the sales tax they paid, which translates to 2% of the 10%.

“On April 1, customers will have to pay the 6% GST. So in total, the tax would be 8% (from the non-refundable SST part) plus the 6% GST. This means that in actual fact, car prices will increase (during the interim period) because you have to pay tax twice,” said Aishah.

But she also said the GST was a very small element in the pricing of the cars as the major element affecting the pricing was the excise duties the companies had to pay to the Customs Department, which range from 65% to 105% depending on the engine capacity of the vehicle.

This, she said, is one of the main reasons car prices in Malaysia are among the highest in the world.

“We have been asking for a reduction of the excise duty but we still get the same answer: ‘No’.

“The revenue the Government gets from duties (excise duty, SST, import tax) from the Malaysian automotive industry comes up to RM7bil per annum. It is too huge an amount for it to lose.”

 

She added that the appreciation of the US dollar against the ringgit would also affect the price of cars.

Compared to January last year, the US dollar has appreciated against the ringgit by a significant 28% to 32%. Many car distributors even use US dollars to pay for their Complete Knock Down packs, including those from Japan and South Korea, Aishah said, adding that most imported vehicle components and spare parts were also priced in US dollars.

“With the exchange rate this high, members are trying to mitigate the problem and do what they can to hold on to current prices.

“But how long can they withstand and absorb this? If they do lose money, then they will have to increase prices,” she said.

RHB Research Institute head of research Alexander Chia said based on calculations, there would be “no discernible material change” post-GST for car prices.

He said when the 6% GST replaced the 10% SST, theoretically one would expect car prices to fall, but there was already a difference between the list price and street price of a car.

Chia said there was already a lot of discounting going on at the street price level.

He also said the car market had been a bit slow in the last six to 12 months because “hire-purchase financing at the current levels” was not profitable for banks, so the banks wanted to prioritise other loan sectors instead.

“Banks are also more wary of who they lend to. They are following the responsible lending guidelines of 2012. The way they compute eligibility for loans is significantly more stringent now,” he said.