Published on June 9th, 2020 | by Subhash Nair0
10% Sales Tax Exemption Won’t Mean 10% Price Drop in CKD Cars
The Perikatan Nasional government recently announced a Short Term Economic Recovery Plan that would effectively remove the 10% sales tax on locally-assembled (CKD) cars and reduce the sales tax by half (to 5%) on fully-imported (CBU) cars. Many would assume that this would directly lead to a 10% discount on all CKD cars sold here, but that will probably not be the case.
This is because what the public expects is a 10% discount on nett selling price or even the on-the-road price. Back when GST was enforced, yes, you could argue that to a certain extend. 6% GST was added to the retail price and once more, separately to the insurance. However, even when we had that 3 month period without GST or SST, cars didn’t get 6% cheaper for the most part.
Perodua, for instance, saw prices fall by 5.6% on average. This is true on the cheapest model they sell, the Axia 1.0 MT, which dropped from RM23965.89 to RM22621.78 (5.61%). The most expensive vehicle they sold at the time, the Alza 1.5 ADV Auto had its price drop by 5.63%. But Perodua made up the difference at the time with RM800 rebates on selected models.
With Mercedes-Benz Malaysia, there was also a ‘slightly-less-than-6%’ decrease in price. The C200 AMG Line, which cost RM254,888 with GST went down by 5.98% to RM240,501.
SST and GST are calculated Differently
But GST is not calculated the same way SST is calculated. As we mentioned above, GST was calculated based on the retail price. SST, however, is added before the nett selling price and before the margins are calculated.
So where GST car prices were something like this:
Final Price = ((Selling Price + Margins + Fees) + 6% GST) + Road tax +(Insurance+GST)
With SST, car prices look more like this:
Final Price = ((Selling Price + Margins + 10% Sales Tax) + Fees + Road tax + Insurance
The sales tax might have a larger number, but it’s added earlier on in the equation. It’s more likely that the drop in retail price will be closer to 6-7% for locally-assembled cars and a much lower than that for fully-imported cars.
Again, we will have to wait and see. Some manufacturers may be throwing other sorts of discounts and promotions to get stock moving as cars have been sitting on lots for months during the MCO period. Also take into account that most of them missed their big Raya sales campaigns and may move these savings on to customers.
Long story short
A 10% price reduction is over optimistic, but if it does happen, it’s going to be dependent on brand-specific promotions to make up the difference.
The Sales Tax Free period commences on the 15th of June and will run until the end of 2020. Stay tuned as we shall share the new prices as soon as they are made available to us.