Published on June 6th, 2020 | by Daniel Sherman Fernandez0
Should you buy a 10% tax-free car today
It only works if you are not trading in a used car
Malaysian car buyers are rejoicing as the government announces the removal of the 10 per cent sales tax on locally assembled and imported cars. Yes, it is good news for car manufacturers who have had an almost zero car sales few months, however we want to advice car buyers not to rush out and buy a new car just because the 10 per cent sales tax has been removed.
Buy a new car only if you really need to or you were planning for some months. Do not rush out and buy a new car just because the selling price is now more attractive. Remember this, you will need to pay installments on the new car for the next 7-9 years depending on your loan tenure.
Also, your trade-in car (if you have one to trade-in for a new car) will be valued much lower as when new car prices drop so will the price of your old car. The same reaction was felt in the used car market when the previous government gave a 6 per cent GST tax discount on new cars in June 2018. New car sales jumped during that period and many Malaysians sold their older (used) cars for a much lower value to get a new car and then realized that what ever savings they were getting from the 6 per cent GST discount did not cover the lower selling price margin of their trade-in used car.
Let us explain in detail. Say you are now driving a 9-year old BMW 320i sports. Last month its used value was between RM42-45k for trade in.
Example 1 : Today with the reduction of 10 per cent sales tax you are all excited to go and get yourself a brand new BMW 330e Sport because its selling price has dropped from RM258,800. to about RM235,000.
With this price reduction on the new 330e you can expect your used 9-year old 320i trade in value for to drop by at least RM15-18k also which brings it to RM30-35k. So, are you really saving any money? The answer is quite clear and many Malaysians are ‘rushing’ into this without looking really closely at the final ‘real’ savings. First time car buyers are the only people really benefitting from this price drop for now.
Example 2: Today the new selling price of a Volkswagen Polo 1.6MPI Comfortline is RM77,000. With this new offer, the price will be around RM70,000. The online classifieds show a used 2016 Volkswagen Polo 1.6 Comfortline selling for RM33,000 before negotiations. This means the previous owner took in a depreciation of RM916,00 every month for 4 years. Can you afford this in the coming years?
The used car market is taking a hit with current stocks that have been sitting in used car lots and some dealers might have to take a loss on some of their vehicles on sale just like you with your trade-in car.