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Car sales tax holiday expected to spur rebound, says Fitch Solutions

02 Jul 2020 / 22:58 H.

PETALING JAYA: The suspension of sales levied on new vehicles purchased between June 15-Dec 31, 2020 by Malaysia’s finance ministry is expected to spur the start of a vehicle sales rebound in 2H’20, according to Fitch Solutions, but will not prevent a full-year decline.

“We believe this will unlock delayed vehicle purchases, put on hold in the months of March, April and May 2020, resulting in vehicle sales for the year getting back on course for our current forecast of a 15.7% decline for 2020 to reach a total of 511,479 units,” it said in a report.

In the first five months of 2020, total vehicle sales contracted by a sharp 48.9% year-on-year (yoy) as a result of the implementation of the movement control order (MCO) on March 18, 2020 which saw dealerships suspend their operations for close to two months.

Under the new measures introduced by the ministry, locally-assembled completely knocked down (CKD) vehicles will receive a 100% sales tax exemption and completely built-up units (CBUs) imported into the country will only be eligible for a 50% reduction in the sales tax.

Fitch Solutions also stated that the reduction of car prices by dealers in response to the significantly lower vehicle sales figures will support its view on a sales rebound for the second half of the year.

“These price cuts will be amplified by the GST suspension which we believe will significantly lower vehicle prices thus stimulating vehicle demand,” it said.

“We are already seeing signs of vehicle dealerships in the country running sales campaigns to entice buyers.”

Furthermore, it expected further easing in the movement restriction under the recovery MCO (RMCO) introduced on June 7, 2020 will result in higher consumer confidence levels, which is expected to spill over into higher sales figures in the months to come.

“This will contribute to the resumption of vehicle purchases that could not be fulfilled under the stricter MCO and the less stringent CMCO regulations, which is shown in mobility data for the retail sector.”

In May, total vehicle sales contracted by 62% yoy which is a marked improvement from a 99% decline in sales reported in April as vehicle dealerships were allowed to operate again.

“We therefore expect the RMCO, to instill more confidence in consumers which we expect to result in better sales figures for the remainder of 2020,” the firm said.

It has identified the possibility of a second wave of Covid-19 infections which could result in the imposition of movement restriction remains as a downside risk to its outlook.

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