03/03/2015
The Goods and Services Tax will be implemented with effect from 1 April 2015. At 6%, the tax definitely does seem lower than the 10% sales tax currently in place for automotives. However, the calculations aren’t as simple as it seems. With various sources of news floating around on the prices of cars increasing or decreasing, it can be tough for us normal everyday folks to predict the costs of owning a car when April comes.
1. Reduction in Prices
According to the Malaysian Automotive Instittute (MAI) in September
last year, the car prices were generally expected to drop between 1% and
3%. On the other hand, the Malaysian Automotive Association (MAA)
explains that the sales tax was based on the open market value of the
car. Meaning, that you go to the Customs Department and get the value of
the components of the whole car that you brought in, and then pay the
10% sales tax on it.
In a report by The Star,
Datuk Aishah Ahmad, president of the Malaysian Automotive Association
(MAA) said, “The GST is going to be charged based on the selling price
of the car on the road, so it would now include accessories, road tax
and insurance (and profit margin). So you are actually paying 6 per cent
on a higher base. That is why it doesn't correspond when the 10 per
cent SST goes down to 6 per cent GST that you get a 4 per cent savings.
The savings would actually come up to only 1 per cent to 2 per cent.”
In short, there may be a reduction in price, but it may not be as
much as you think. However, savings are still savings, and GST could
help you achieve those savings.
2. Increased Costs for Car Companies
There is also the matter of leftover stocks from pre-GST prices. As
car companies have to constantly have a basic number of cars ready to
sell, they typically have two months’ worth of stocks at any point. When
GST comes, some of these cars will have the 10% sales tax already paid
for by the car company. The Customs Department says that for stocks held
on hand at March 31, it will refund 100 per cent of the sales tax "if
they can show they have the import documents or local invoices from
assemblers or manufacturers that show the 10 per cent sales tax clearly
on their invoices."
However, many companies buy their vehicles not directly from a
licensed manufacturer but through a distributor, and the distributor is
the one who buys it from the manufacturer. This means that these
companies would not be able to claim back the full 100% of the sales
tax, which may result in a costlier price tag for cars during the
transition period right after GST is implemented.
3. The Other Costs
There are a few factors, not including the tax, which affect the car
prices. One of the main factors is the exchange rate; appreciation of
currencies against the ringgit could cause car prices to go up. We also
have the import tax and the excise duty on cars which remain unchanged;
they can range from 65% to 105%. As one of the main reasons for the
existing costs of cars in Malaysia, they determine the price of the car
to the buyer. As such, unless there’s a change in policy, we won’t be
seeing a major change in car prices anytime soon. This would be
unlikely, because the government gets a revenue of RM7bil a year from
duties from the industry.
4. Paying A Smaller Percentage for a Higher base
The main reason why you won’t be getting a 4% savings on your car is
this. The GST is going to be charged based on the selling price of the
car on the road, so it would now include accessories, road tax and
insurance (and profit margin). So while you’re paying a lower
percentage, you’re paying it based on the price added with the profit
margin – in essentially what would be the selling price.
As the prices after remain uncertain, all we can do is wait for the GST to come into effect to see what happens. Stay tuned to Carsome.my for the latest news, updates and developments in the automotive world.
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