Will The Reintroduction of GST Lower Car Prices?

Now that the Sales and Services Tax (SST) holiday is about to be over (assuming that there are no more extensions), talks about the reintroduction of the Goods and Services Tax (GST) are hotter than ever as our beloved prime minister, Datuk Seri Ismail Sabri Yaakob, is deliberating that very move for our country.

A statement by the Federation of Malaysian Manufacturers (FMM) has stated that they've received close to 500 responses from businesses that seem to support the notion of bringing back the GST in replacement of the current SST. Back in April 2015, the 6% GST came into effect to replace the previous 10% SST. SST 2.0 was then reverted back in September 2018 when Pakatan Harapan came into power. Quite a commotion on both occasions, if you can remember.

SST or GST - Who wins?

According to Datuk Seri Ismail Sabri Yaakob, this move led to a whopping RM20 billion in annual revenue losses, which is why the Malaysian government right now is seriously considering moving back to GST. If this is the case, then it might be good news not just for Malaysia as a whole, but also for the automotive industry as well.

In theory, car prices may drop anywhere between 1-6% if the Malaysian government decides to replace the current 10% SST with the previous GST rated at 6%. Dato Seri Ismail also stated that they're aiming for a 'reasonable' GST tax rate percentage that will benefit both the people and businesses alike, so things are still a bit uncertain at this moment in time.

In other words, the possibility of this new GST tax rate can be lower or higher than 6%, but it won't likely reach the 10% mark like the current SST. But, this is all just theory for now. Things are much more complicated than it seems on paper, as proven back in 2015 when the 6% GST was introduced. Some prices went up during that time, and some prices actually dropped when the 10% SST came into play in 2018.

GST = More expensive cars?

If we use 2015 as a benchmark when GST was introduced at 6%, a majority of cars saw a decrease in price pretty much across the board for all brands. There are, however, a few exceptions where a number of particular models went up, but not by much.

Using Proton as an example, all of their models saw a drop in prices of up to 3.25% or RM1,475 (Iriz 1.3 CVT Standard). Another example from Honda Malaysia also saw a drop in prices by up to 2.38%, except for the Odyssey CBU model, which went up 0.44% or RM1,008.

To put it simply, if we use 2015 as a benchmark, the reintroduction of GST will most likely cause a slight increase in car prices when compared to where the prices are at right now (which are being showcased with the SST tax exemption), but they shouldn't be figuratively higher once the SST tax break ends. Despite all of these, there's still a chance that this tax break might be extended once again, perhaps until the end of the year?

Stay tuned for more details.