Yesterday’s announcement by the new government that the goods and services tax (GST) is to be set at 0% on June 1 did not mention the sales and services tax (SST), which is the tax regime used before GST kicked in on April 2015. Replacing GST with SST was one of Pakatan Harapan’s main election promises.

The announcement of zero-rating GST without mentioning SST led to uncertainty and no shortage of speculation, including one claiming that there will be no tax for the first two years of the PH administration. That has been denied by the ministry of finance (MoF), which released a statement touching on fiscal reform and SST this morning. It’s a brief explanation on how the country will cope without the significant revenue contribution from GST, which stood at RM44 billion in 2017.

According to the MoF, the fiscal reform programme is underway. “The shortfall from GST which is to be zero-rated effective June 1, will be cushioned by specific revenue and expenditure measures that shall be announced in due course,” it said in the statement.

The application of the old SST on a car (left), versus the current GST (right)

“SST will be reintroduced. The lowering of expenditure will begin with rationalisation, efficiency measures and reduction in wastage,” the ministry added, without mentioning any tax rate or start date.

Besides the above, the MoF also said that current crude oil prices have gone up significantly from the Budget 2018 estimation US$52 (RM206) per barrel, and this will provide a buffer for the immediate future. “Fiscal responsibility, transparency and governance will be main considerations in the implementation of fiscal reform,” it said. Brent crude is currently hovering just below the US$80 per barrel mark.

The return of SST to replace GST was never in doubt, as the government can’t run on air and the markets and rating agencies are watching closely. What’s also certain is that car prices will most certainly go down come June 1 with 0% GST, before having to be raised again when SST is reinstated.

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

As such, there should be a “tax-free window” after June 1 until the date SST kicks in, unless the government announces a start date for SST that coincides with the GST zero rating. It has two weeks to do so to avoid the fall and rise of car prices.

If the new SST rate is 10%, as it was before GST came into play, we could be seeing an increase in car prices compared to today’s sticker prices. If one recalls, car prices largely came down on April 1, 2015, when GST replaced SST. We were reminded of this earlier this week by Edaran Tan Chong Motor’s sales and marketing director Christopher Tan.

“Almost every brand, when we migrated from sales tax to GST, their prices actually came down a little bit. So if the situation is such that if the sales tax implemented will be exactly the same as before, there could actually be a price increase. What I can say for now is that perhaps now is the best time to buy, because if that happens you could be paying a slightly higher price in the future,” he said on Monday at the launch of the new Nissan Serena S-Hybrid.

Another potential surprise for the car buying public is that prices might not fall by exactly 6% come June 1. An industry source told that buyers might not see a 6% drop for all brands immediately, as carmakers have paid GST all along the production and distribution process, and the layered tax isn’t just charged to the carbuyer in one lump sum.

However, 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 be able to pay current prices sans GST. That is if SST hasn’t come back in by then.

Read our in-depth article on GST and its impact on Malaysia’s automotive industry, with views from customs department director-general Datuk Subromaniam Tholasy and Malaysian Automotive Association president Datuk Aishah Ahmad.