KUALA LUMPUR: Vehicle prices are expected to drop by 2-3 per cent if the goods and services tax (GST) is reintroduced at a 6 per cent rate in the future to replace the sales and services tax (SST).
RHB Research said if implemented, the tax savings will passed on to consumers, similar to the first GST implementation in 2015.
However, the short-term impact may include weaker auto demand, as big-ticket consumer discretionary purchases could be indirectly impacted by the increase in the prices of other goods and services.
The bank-backed research firm noted that there were some market talk suggesting a possible reintroduction of the GST to replace the current SST to broaden Malaysia's tax base and increase government revenue.
According to media reports, the average annual tax collection was approximately RM40 billion during the GST regime, compared to the RM25 billion collected annually during the SST regime.
"While comments by finance minister Tengku Datuk Seri Zafrul Abdul Aziz indicate that GST may not be reintroduced in the upcoming 2022 national budget, we cannot rule out the possibility of its return going forward," the research firm said.
Touching on the implications for the automotive sector, RHB Research said that when the 6 per cent GST came into effect in April 2015 to replace the 10 per cent SST, total industry volume (TIV) for the month fell 33 per cent month-on-month (MoM).
"The high March 2015 TIV of 67,314 units was mainly due to consumers making vehicle purchases ahead of the implementation of the GST, due to the uncertainty of post-GST vehicle pricing, and possibly in the hope of capturing better resale value for their used vehicles.
"Post-GST, the prices of a majority of car models dipped by 1-3 per cent. Taken together, we expect car prices to decline by a similar 1-3 per cent if a 6 per cent GST is reintroduced. However, it is unlikely that the pre-GST purchase frenzy will re-occur – if we assume that there will be no aggressive pre-GST sales campaigns and promotions held," RHB Research said.
Further, RHB Research said while the likely drop in car prices post-GST is positive, the research firm believes such changes should not be significant enough to move the needle for consumers.
"The quantum of tax savings passed through to consumers will also be influenced by the prevailing foreign exchange rates.
"However, if the prices of other goods and services rise post-GST, the psyche of the consumer on making big-ticket purchases could be affected in the short term," RHB Research said.
RHB Research remains Neutral on the auto and auto parts sector, with downside risks including tightening bank approvals on car financing, the sharp weakening of the ringgit, and a slower-than-expected normalisation in demand post-SST exemption in end-2021.
Further, other downside risks are sustained disruption in semiconductor chip supplies and further spikes in Covid-19 infections and subsequent rolling lockdowns.