Zero GST - The Rich Will Gain Most, The Poor And Middle Class Less So

In keeping with Pakatan Harapan’s election manifesto, the newly formed Malaysian government under the leadership of Tun Dr. Mahathir Mohamad has since announced that come 1-June 2018, all items currently taxable by GST will become zero rated. It is good news for many since items like RON 97 petrol will now be cheaper and so will cars.

For now, there is no announcement that the existing 6 percent GST will be replaced with the previous 10 percent SST, which effectively means that there will be a drop in car prices.

However, the quantum of reduction will vary greatly, depending on the base value that the tax is calculated from.

Someone who buys a base model Perodua Axia 1.0E (currently priced at RM24,900 with GST) can only hope to gain a measly RM1,344 in reduction while the person who is buying a Mercedes-Benz S400h AMG (RM598,888 with GST, without insurance) will enjoy a whooping discount of RM33,632.

If existing EEV incentives for locally-assembled fuel efficient cars haven’t brought prices for premium cars low enough, zero-rated GST will. Even those who are shopping for a cheaper C200 AMG (RM254,888 with GST, without insurance) can look forward to a reduction of RM14,386

Young adults buying a Perodua Myvi (between RM44,300 to RM55,300 with GST, without insurance) can expect reductions of around RM2,500 to RM3,100.

The middle class buying an entry seven-seater Honda BR-V (RM83,210 to RM90,100 with GST, without insurance) or compact family sedan like a Honda City (RM75,930 to RM89,200 with GST, without insurance) can expect a reduction of around RM4,000 to RM5,000, while those shopping for a higher range CR-V (between RM141,558 to RM167,327, with GST, without insurance) can expect prices to be slashed by around RM9,000, depending on variant.

As it is, car dealers are reporting massive cancellation in orders, and sales have reduced to a trickle. Industry players are expecting May’s TIV (total industry volume, a measure of total vehicle sales) figures to be the lowest in recent history, but are also anticipating a sharp spike in orders come 1-June.

Many stakeholders are also bracing themselves for another round of upheaval once the government decides to reintroduce SST. Although the government has yet to make any formal announcements regarding the reintroduction of SST, it’s hard to imagine running country’s civil service while balancing all our debts against a reducing tax base. Without GST for the next half of 2018, the government is estimated to be losing some RM25.6 billion in revenue in this year alone (RHB Research Institute estimates). 

Update: The Ministry of Finance have confirmed that SST will be making a return, replacing GST

Nevermind about servicing the debts left behind by the previous Najib administration, our schools, hospitals, public infrastructure, and public services need money to keep them running.

When SST is reintroduced, which it will at some point, prices will go up once more and car sales will once again grind to a halt. So what can you do as a consumer? If you are looking to buy a car, do it within this period. On top of the reduction in prices driven by zero-ing of GST, many brands are also offering attractive Raya promotions.

But we have to add a caution to our buying advice – please don’t take a 9-year loan. If you have to take a 9-year loan, you can’t afford to maintain the car and you start doing nonsense like skipping maintenance work, and complain on Facebook that replacement parts and tyres are expensive. Only in a parallel universe can there exist a sophisticated car with all the features you want but require the same maintenance cost as the cheapest Perodua.