100% sales tax exemption for CKD cars in Malaysia – does this mean car prices will go down by 10%?

Earlier today, our prime minister Tan Sri Muhyiddin Yassin announced a new economic stimulus plan, called Penjana, which includes measures to help the automotive sector, specifically in promoting new car sales. These include a 100% sales tax exemption on locally-assembled (CKD) models and 50% on fully-imported (CBU) models from June 15 until December 31, 2020.

Sounds good, but will this result in a reduction of car prices? Well, yes, but not by as huge of a margin as you might expect. This is because the exemption applies only to the vehicle’s sales tax, which is 10% for both CKD and CBU passenger vehicles, and does not apply to import and excise duties. It’s also worth noting that the sales tax is charged higher up in the total pricing structure – before margins and inspection fees – to arrive at the retail price.

Effectively, we are reverting to the tax holiday enjoyed in 2018 from June 1 to August 31, which saw the removal of the goods and services tax (GST) from all car prices. It was not until September 1, 2018 that the sales and services tax (SST) was reimplemented, and we’ve been following this system until today.

With this latest announcement, the SST will now be removed (temporarily) for CKD cars and is halved to 5% for CBU cars, so car prices will go down. Given the ratio of the tax exemptions, CKD models are the ones that are truly part of this new “tax holiday,” while it is only a partial relief for CBU cars. Referring to the GST-free prices in 2018, cars were cheaper by a few hundred or thousand ringgit, depending on the model.

Digging through historical figures, a Perodua Myvi 1.5 Advance AT was priced at RM54,090 inclusive of SST in 2018, but was RM52,186.23 during the tax holiday (without GST or SST in effect) – an effective difference of RM1,903.77 or 3.52%. Similarly, a Honda City 1.5 V was RM86,893 with SST, but RM84,205 during the tax holiday – a difference of RM2,688 or 3.09%.

For more examples, we can look to the previous Toyota Vios 1.5 S AT, which was priced at RM93,200 with SST, but was RM88,677 during the tax holiday – a difference of RM4,523 or 4.85%. In the premium segment, the Mercedes-Benz E 250 Exclusive Line went for RM370,888 with SST, but was RM357,482.58 during the tax holiday – a difference of RM13,405.42 or 3.61%.

This effect was seen with a majority of models from other brands as well. As you can see in the numerous pricing tables we’ve prepared in 2018, the majority of differences were between 3-5%, and nowhere near the 10% (CKD) as many would be led to believe today. Still, a price reduction, no matter how small, is still a welcome change for car buyers.

Having said that, however, we did notice the differences in prices (SST vs tax holiday) were relatively larger for pick-up trucks. As these commercial vehicles are effectively sold without any excise or import duties, the removal of sales tax carries a bigger effect in their retail prices.

For example, the Toyota Hilux 2.8 L-Edition was RM138,000 with SST and RM126,411 during the tax holiday – a difference of RM11,589 or 8.4%. But remember, CKD pick-up trucks in Malaysia are limited to the Hilux, Nissan Navara and Isuzu D-Max only – the rest are CBU products, and would effectively see much smaller reductions.

The government is looking to encourage car sales with this move (and in turn spur the nation’s economy as a whole), and these tax exemptions are meant to serve that purpose. So, the tax holiday is technically back, and if you’re looking to buy a car, you’ll want to wait until June 15 to benefit from it.

We won’t know by exactly how much car prices will change, as there are a few variables and changes since 2018, but the aforementioned examples do give a rough indicator of what to expect, which is reductions of around 3% to 5% (definitely not 10%) across the board for CKD cars. We’ll bring you the updated price lists as they come in, so stay tuned.

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