Car prices lower post-Goods and Services Tax

Press conference on Altair, ASEAN. From Left to Right: Malaysia Automotive Institute (MAI) CEO M.Madani Sahari, Altair for ASEAN, Australia and New Zealand MD Srirangam Srirangarajan, APM Chief Technology Officer Dr Fun Woh Peng. - LOW LAY PHON/THE STAR

KUALA LUMPUR: Average car prices are expected to fall by between 1% and 3% after the implementation of the Goods and Services Tax (GST) in April 2015, according to the Malaysian Automotive Institute (MAI).

MAI chief executive officer Madani Sahari said the agency recently conducted a price-simulation to determine how vehicle prices would be impacted by GST.

“The prices of most models should drop by between 1% and 2% post GST,” Madani said at a press briefing by technology and engineering services company, Altair Engineering Sdn Bhd.

He said the final price of cars were determined by the car companies and not the Government. The 6% GST will replace the current sales tax of 10%.

Unlike the existing sales tax and service tax, GST is generally charged on the consumption of goods and services at every stage of the supply chain, with the tax burden ultimately borne by the end consumer.

This multiple tax levels feature of GST is the fundamental change from the present single-stage sales tax and service tax levied at only one stage of the supply chain.

According to Madani, under the current tax structure, sales tax was only imposed after the vehicle was out of the production factory, when it hit the showroom.

Post GST, tax can be imposed anywhere along the production chain – before it even leaves the factory. Tax can be imposed multiple times by the manufacturer and retailer – not just once at the end before the product is passed on to the consumer.

Separately, Madani said those keen to buy cars should not hold back their purchase until after the implementation of GST.

“It’s pointless to wait to buy a new car until after GST is implemented because you will ultimately be losing out on the resale value of your old vehicle.

“A car depreciates on average around 10% a year. That’s how much you will lose out if you wait to buy a new car next year, just to save between 1% and 3%.”

He added that with car prices expected to be more competitive next year, the MAI has projected total industry volume to hit 700,000 units in 2015.

“We forecast vehicle sales to reach 670,000 units this year,” he said.

Meanwhile, Altair managing director for Asean, Australia and New Zealand, Srirangam Srirangarajan said he expected the company’s simulation software and consultancy services business in Malaysia to grow by 25% year-on-year.

“A lot of companies within the local manufacturing industry are looking to move to the next level. They want further development of components, and this is what will drive our growth,” he said.

Madani said the services that companies like Altair provided could help to enhance the competitiveness of the local automotive industry.

BY EUGENE MAHALINGAM