Sales tax reintroduction can spell trouble for Malaysian vehicle sales in 2023

MALAYSIA’S new vehicle sales is expected to contract in 2023 as high base effects kick in due to the strong demand for new vehicles in 2022.

In this regard, Fitch Solutions Country Risk & Industry Research foresees higher borrowing costs, rising vehicle prices due to the sales tax reintroduction and a slowing economy will contribute to lower sales figures in 2023.

“We have revised our 2022 sales forecast higher due to higher-than-expected sales figures over the 10M 2022 period driven by a sales tax exemption, an expanding economy and looser movement restrictions,” the research house which is independent of international credit rating agency Fitch Ratings pointed out.

“In 2023, we believe that new vehicle demand will slow considerably as sales were brought forward to take advantage of the sales tax exemption that expired on June 30, 2022.”

While the sales tax exemption on vehicle sales has lapsed, the Finance Ministry has issued a grace period for vehicles that ordered before end-June 2022 but could not be delivered to clients due to the ongoing global chip shortage.

Reintroduction of Sales Tax and Declining Business Sentiment Levels to Drag Malaysia Vehicle Sales Lower
Malaysia – Passenger & Commercial Vehicle Sales (2014-2023)

Car purchasers have up until March 31, 2023 to register their vehicles with the Road Transport Department (JPJ) to get the exemption.

“In June 2022, there was an alleged backlog of 264,000 units across the industry awaiting completion once chips are shipped so that automakers can fulfil the orders,” noted Fitch Solutions.

“This means that demand will deteriorate in the months after the end of the sales tax exemption grace period.”

This is despite sales having remained robust as orders continue to trickle in as monthly sales figures in August, September and October 2022 have exceeded 60,000 units per month which is significantly above the 2019 monthly average of 50,000 units delivered.

“We expect this momentum to carry into 1Q 2023, after which sales will rapidly deteriorate from 2Q 2023 and onwards,” the research house projected.

“We, therefore, expect sales for 2023 to contract by 9.3% to reach around 624,000 units which remains significantly above 2019 levels of 604,000 units.” – Nov 30, 2022

Subscribe and get top news delivered to your Inbox everyday for FREE