The application of the old sales tax (left) on a car,
versus the current goods and services tax (GST, right)

The ministry of finance has just announced that Malaysia’s goods and services tax (GST), currently set at six percent, will be zero-rated come June 1, in line with the new Pakatan Harapan government’s promise to abolish the tax within 100 days of it coming to power. This was first announced in the coalition’s manifesto for the 14th general election.

Unlike what was previously announced, this effective elimination of GST will not coincide with the introduction of a sales and service tax (SST), as outlined by Pakatan Harapan in its manifesto – instead, there will simply be no tax on goods and services until a new tax structure is announced later on. Items that have already been GST-exempt will remain as is.

UPDATE: MoF has confirmed on May 17 that SST will be back – full story here.

While the move will surely be well-received, it throws a huge curveball, especially when it comes to car prices. Automotive companies are still in the dark regarding the effects of abolishing GST in favour of SST, whether prices will go up or down – and they haven’t had a concrete answer for prospective customers.

As recently as Monday, Edaran Tan Chong Motor’s sales and marketing director Christopher Tan said that car prices might actually go up slightly if the previous 10% sales tax (which was superseded by GST) is reinstated without changes. This is due to previous experience with moving from the sales tax to GST, which saw prices go down across many brands.

Subaru and Nissan have already announced price protection schemes
to safeguard buyers against car price fluctuations

In fact, carmakers and distributors such as ETCM (Nissan) and Motor Image (Subaru) have already introduced price protection schemes that would maintain prices for a limited time should they go up post-SST, and refund buyers in the form of service vouchers should the opposite happen.

With the abolishment of GST effectively brought forward, these companies will likely have to do these adjustments in two steps – refunding buyers who booked before June, then maintaining the pre-SST prices from then on out. That is if SST is implemented within the eligibility period of the respective schemes, which for Motor Image is until August 18 – the end of the new government’s first 100 days.

UPDATE: Story has been edited and includes the general scope of changes that will come about with the switch to 0% GST.

Whatever it is, car prices should go down on June 1 as GST is reduced to 0%, but by how much? An industry source told us earlier that buyers might not see current selling prices being exactly six percent cheaper for all brands immediately, as carmakers have paid GST all along the production and distribution process, and the tax isn’t just charged to the customer in one lump sum.

Nonetheless, the input tax that has been paid along the chain for existing inventory by the manufacturer and distributor can be claimed back from the government, and in a relatively short period at that. Thus, within a quick time frame, buyers should expect to see selling prices exactly – or close to – as that listed currently in a price list before GST is imposed.

In fact, for a short period, consumers could well be looking at a vehicle purchase with no GST and SST imposed, that is until the latter comes into effect. When SST will be reintroduced remains to be seen.

In any case, carmakers are already in the midst of calculating the revised prices without GST, and we will share them with you once they are announced, along with more details from the government as and when we get them. In the meantime, you can read in further detail on how GST affects the selling price of a car here.