The long-awaited announcement about the abolition of the Goods and Services Tax (GST) was made today in an official statement issued by the Ministry of Finance. While not mentioning that the GST is abolished, it will be reduced to a 0% rating, from the present 6%, with effect from June 1, 2018. The reason why it cannot be abolished immediately is probably because the change has to be approved by Parliament and the first session has not taken place.

Nevertheless, understanding that being one of the promises made by Pakatan Harapan if it won the elections, the rakyat were waiting to see the promise fulfilled. Many industries have also been anxious for the announcement to be made because their business is affected. Car companies are finding orders and purchases slowing down to a trickle because people are hesitant about committing. There is the belief that the removal of GST will mean that vehicle prices will be lower so they do not want to make the mistake of buying so soon and regretting having paid more when GST is removed.

Three companies were bold enough to offer ‘price protection’, assuring customers that they would be refunded the extra money if the vehicle they purchased became cheaper as a result of GST removal. The companies were Edaran Tan Chong Motor (Nissan), Motor Image Malaysia (Subaru) and Proton. Their assurance was hoped to persuade customers to sign up this month and not hold back.

Now that it has been confirmed that GST will no longer be applied from June 1, 2018, it would be hard for anyone to want to buy a new car this month. While the reduction is not actually a straightforward deduction of the 6% GST applied on current prices, the fact is that the revised prices will still be lower if no new taxes are introduced. There has been talk that the Sales & Service Tax (SST) may be introduced but so far, nothing has been heard about this although it may eventually be applied.

With a sales slow-down in the remaining days of May, less vehicles are likely to leave stockyards which can create problems for companies selling high volumes.

The new development has the car companies upset and the Malaysian Automotive Association (MAA), when contacted, declined to comment at this time as some additional clarification is needed. A few car companies Motor Trader contacted were also not willing to comment right away as ‘we have to have an emergency meeting first’. However, all of them admitted that there has been a drop in bookings which has been of great concern.

The slowdown in sales in the second half of May would certainly have a serious impact not only on the companies selling new cars but also the rest of the auto industry. Especially for the high-volume brands, there will be a surplus of produced vehicles and suppliers will also be affected in different ways.

Of course, when June comes around, the industry is likely to experience a ‘boom time’ as buyers flock into showrooms again and many more might even join them seeing that prices have dropped. If the Total Industry Volume for June reaches a new high, then maybe it will compensate for losses in May.

For the consumer side, this is great news but for those in the industry, it’s the start of a lot of reworking of budgets and forecasts, as well as examining costs throughout the supply chain again. Preparing for GST was a tedious and lengthy exercise and while its removal may seem easier, there will still be loose ends to settle. Hopefully, the Customs department will be prepared for GST being 0%-rated by June.

We will bring you information on revised prices, new developments and statements from the industry as soon as we get them so do drop by this website regularly or follow our Facebook page to be alerted of new articles.

[Chips Yap]

 

 

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