KUALA LUMPUR: The Malaysian Automotive Association (MAA) is appealing to the government to extend the vehicle sales tax exemption, which effectively ends on June 30.
MAA president Datuk Aishah Ahmad said the tax holiday had helped to spur and sustain car sales during the course of the pandemic.
“The MAA has appealed to the Finance Ministry to extend the sales tax exemption. But so far, we have not received any feedback,” she told StarBiz.The MAA is hopeful that the sales tax exemption will be extended until the end of the year , which, on top of being a sales-booster, would also allow automakers to complete their backlog of orders.
With less than two months left for the sales tax exemption, Aishah said the local automotive industry could see a jump in sales for May and June.
“Sales numbers will hopefully surge in May and June, as the sales tax exemption is ending on June 30,” she said.
RHB Investment Bank research analyst Jim Lim said vehicle sales in the current (second) quarter of 2022 is expected to be strong, as customers will want to take advantage of the last remaining weeks of the tax holiday.
“Demand for cars remains strong across the board, as customers rush to take advantage of the sales tax exemption.
“From the latest March production figures, we can see that car makers are ramping up production to the best of their abilities, even amidst chips and parts shortages, to help customers take advantage of the sales tax exemption before it ends.”
UOB Kay Hian in a recent report also maintains that vehicle sales will remain strong in the second quarter of 2022.
“We expect the second quarter to deliver better sales numbers year-on-year as automakers rush to deliver back-logged bookings before the ending of the sales tax exemption in June to avoid cancellation by consumers.
“Additionally, we believe that with the reopening of economic activities and the continuation of the sales tax exemption, this could lend strength to a recovery in auto sales, as seen by the growing number of backlogged bookings for popular models and the steady stream of new model launches in 2022. ”
According to MAA data, vehicle sales in March 2022 rose 12.75% to 73,222 units from 64,938 units in the previous corresponding period.
Passenger vehicles accounted for 65,902 units, while commercial vehicles capacitive 7,320 units.
For the first quarter of 2022, sales volume was higher by 7.8% at 159,752 units compared with 148,155 units in the same period last year.
The vehicle sales tax exemption was announced in June 2020 under the short-term economic recovery plan or Penjana.
Under the exemption, locally-assembled cars are fully exempted from the sales tax while for imported cars, the sales tax has been reduced from 10% to 5%.
The tax holiday was initially supposed to last until the end of 2020. However, it was extended to June 30, 2021; and then again until the end of the year.
During the tabling of Budget 2022 in October last year, the government announced that the sales tax exemption would be extended one more time until June 30, 2022.
The multiple extensions were mainly due to the repeated lockdowns over the past two years, which disrupted business operations and prevented car buyers from being able to fully enjoy the benefits of the tax holiday.
The reopening of economic activities and sales tax exemption has seen several automakers projecting stellar sales for this year.
Among them is national carmaker Perusahaan Otomobil Kedua Sdn Bhd (Perodua), which is targeting record sales of 247,800 units for 2022.
During a press conference in January, Perodua president and chief executive officer Datuk Zainal Abidin Ahmad said the sales target would be underpinned by the ongoing tax holiday and brighter economic prospects this year.
“Our target is also premised on the assumption that there are no movement restrictions and business disruptions like last year,” he was quoted as saying.
Last month, Perodua announced that its sales had increased to 26,759 units in March, which was 54% higher than the 17,421 units registered in the previous month.
In the first quarter of this year, the company sold 61,624 units, 6% higher than the 57,909 units registered in the same period of 2021.
The strong sales performance has already resulted in Perodua achieving 25% of its sales target for the year of 247,800 units.
Meanwhile, UMW Toyota Motor Sdn Bhd, which is the assembler, marketer and exclusive distributor of the Toyota and Lexus vehicles in Malaysia, announced last month that its sales had surged 32% to 8,487 units in March, compared with the 6,432 units registered in the preceding month.
In the first quarter of 2022, the company sold 22,447 units, 31% higher than the 17,151 units sold in the corresponding period of 2021.
In an interview with StarBizWeek last month, UMW Toyota president K Ravindran said the company is targeting to sell 73,000 vehicles.
Ravindran said sales for the year would be spurred by improved economic conditions and the vehicle sales tax exemption, adding that the company would likely be able to sell more cars if the tax holiday is extended.
It is still uncertain whether the sales tax exemption will be extended beyond next month.
Some industry observers believe that multiple extensions of the tax holiday could be detrimental to the local automotive sector.
“When the government zero-rated the goods and services tax or GST for three months in 2018, the temporary tax holiday created a huge surge in demand for cars,” said an industry observer.
He added that many people were rushing to buy cars “not because they really needed them”.
“Many just wanted to capitalise on the lower prices. But when the tax holiday ended, vehicle sales immediately plunged, not just because prices were now higher, but because nobody wanted to buy a car anymore.
“For months after the tax holiday ended, many auto companies were struggling to sell new cars.”
Analysts are projecting vehicle sales to be slower in the second half of 2022 if the sales tax exemption is not extended.
In light of this possibility, Lim said auto distributors may provide discounts at the expense of margins to support sales volumes.
“Costlier car parts may further pressure margins, with different distributors having varying abilities to pass on the higher costs.”
In the event of the sales tax exemption not being extended, Lim said more affordable brands such as national marques like Proton and Perodua would likely face a larger impact, as their customers are more price-sensitive.
“The more premium brands such as Porsche, Mercedes Benz, BMW and to a certain extent, Mazda, are likely to face a relatively smaller impact as their customers are less price-sensitive.
“They have less of a need to absorb the sales tax post-exemption and thus are less prone to margin pressures from potential discounts.”