Simplified SST mechanism contributes to lower car prices

KUALA LUMPUR: The unexpected reduction in most car prices in the country could be attributed to the simplified mechanism of the Sales and Services Tax (SST) and higher localisation content for vehicles.

AmBank group chief economist and head of research Dr Anthony Dass said SST was a single tax on original equipment manufacturers compared with tax on multiple stages in the Goods and Services Tax (GST).

“The simplification of the process leads to savings. However, the tax exceptions on completely knocked down components are on the same items under GST and SST,” he said.

He said higher localisation was the main item as local parts and components were exempted from SST. “But firms receive more savings as a result of direct negotiations with the International Trade and Industry Ministry.”

Sunway University Business School economics professor Dr Yeah Kim Leng concurred that the lower vehicle prices were recognised due to the lack of cascading effect. SST was a single stage tax and not collected at every stage of the supply chain.

“SST has narrower coverage list of items included for taxing, which in turn results in lowering cost to manufacturers (cost-savings for producer),” he said.

Yeah said manufacturers could potentially absorb some of the tax due to stiffer competition from other players and weaker consumer demand.

“If they (manufacturers) want to push demand to increase sales, they may not be able to raise car prices under the current environment. Car manufacturers are facing increased competition that result in lowering prices to stimulate the demand,” he said.

Malaysia Automotive Institute chief executive officer Datuk Madani Sahari said the recently-implemented SST had indeed reduced car prices, mostly cars produced in the country.

“Through an SST implementation that balances taxation with appropriate incentives for OEMs, the government ensures the cost savings are transferred to reduce prices,” he said.

Madani said considerations for incentives were based on the economic spin-off resulting from the specific business activities of car manufacturers. “This includes, employment, creation of local businesses and services as well as technology application within the Malaysian industry,” he added.

MIDF Research said localisation was now factored into SST calculation due to a change in the way the SS 2.0 is calculated.

This was similar to the excise duty mechanism which rewarded localisation.