Car sales to grow after sales tax exemption
KUCHING: The extension of sales tax exemption for new vehicles by the Ministry of Fnance for another six months to June 30, 2021 is set to spur car sales and total industry volume (TIV) well into 2021.
In a surprise announcement, the government announced via a memo issued to the Malaysian Automotive Association (MAA) and Malaysian Association of Malay Vehicle Importers and Traders ( PEKEMA) that there will be an extension to the new vehicle sales tax exemption (including MPV and SUV) to June 30, 2021.
The sales tax exemption, which has been in place since 15th June 2020, was originally scheduled to end on December 31, 2020. According to the memo, the percentage of sales tax exemption remains unchanged at 100 per cent for locally-assembled (CKD) cars and 50 per cent for fully-imported (CBU) cars.
“This is a positive surprise for automakers and consumers which should prompt a buying frenzy over the next few months and relieve the back-logged bookings,” commented Kenanga Investment Bank Bhd (Kenanga Research) on the matter.
“The new vehicle sales tax exemption is part of the government’s Penjana programme to spur demand within the local automotive market.
“The sales tax exemption has resulted in reduced prices for passenger cars, although pick-up trucks are not eligible as they are classified as commercial vehicles.”
In part due to sales tax exemption and promotional campaigns, Affin Hwang Investment Bank Bhd (AffinHwang Capital) saw that auto players had overall reported commendable TIV at 280,000 for the period July to November this year, against same period last year of 253,000.
“In particular, national car makers Perodua and Proton stood out, recording double digit yoy sales growth each month since the lifting of lockdown in May 2020,” it said. “Broadly, we foresee the extension of sales tax exemption to benefit automakers across the board, as car prices are set to remain lower by about three to six per cent going for 1H21.
“In view of the latest development, we raise slightly our TIV forecast for 2021E to 540,000 from 520,000. This largely factors in higher unit sales across most marquees.”
While the tax exemption should provide a much-needed support to car demand, AffinHwang Capital remained cognisant of the challenging macro-backdrop, such as high unemployment and lower disposable income amidst Covid-19, which could continue to hurt pockets of discretionary consumption and thereby suppressing purchases of bigticket items.
“Additionally, as this was a surprise announcement, incremental demand may be more modest this time around, given that sales would likely have already been brought forward in 2H20.”
While AffinHwang Capital remained neutral on the sector, Kenanga Research upgraded its auto sector call to overweight from neutral as it envisage stronger recovery in 2021 with TIV target at 585,000 units.
“We believe the new volumedriven launches in the fourth quarter like the Proton X50, Honda City and Nissan Almera could help improve consumer sentiment with back-logged booking to overflow into 2021 and boosted by the extension of SST exemption, seasonal promotion and new launches in the 2H of the year.
“Overall, the 2021 could potentially be a better year supported by the new launches in 2021 along with better incentives program under the National Automotive POlicy 2020, positive impact from Bank Negara Malaysia’s Overnight Policy Rate cut and pre- emptive measures to assist those whom might be financially challenged by Covid19 impact.”