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,Watchful period: An image of the Proton X70's interior 2022 facelift. The company, like the rest of the industry, is keeping an eye on whether the vehicle sales tax exemption will be extended beyond the end of this month.

KUALA LUMPUR: All eyes are on whether the vehicle sales tax exemption, which ends this month, will be extended to assist the automotive sector that has been affected by the pandemic.

RHB Investment Bank said an extension to the tax exemption would indeed bode well for the local industry.

“Given the long wait times and many customers’ inability to take advantage of the tax exemption, we think there might be a possibility that it could be extended,” RHB said in a report yesterday. “Also, the 15th General Election may provide additional impetus to extend the tax holiday. If this pans out, we may relook at our 2022 sales forecast and potentially adjust the numbers”

RHB’s full-year projection is 580,000 units, while the Malaysian Automotive Association estimates 600,000 units for 2022.

Last week, Transport Minister Datuk Seri Dr Wee Ka Siong said the government may extend the sales tax exemption for new vehicles to help the automotive industry in its recovery process, having faced numerous challenges during the stop-start lockdown.

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“The government is considering the proposal to extend the exemption and a decision will be announced soon,” he said in a recorded statement at the Federation of Motor and Credit Companies Associations of Malaysia’s AGM on Saturday.

For now, RHB is maintaining a “neutral” weighting on the local automotive sector.

“While an extension of the sales tax holiday would bode well for car demand, we are cautious on near-term headwinds, such as a strengthening of the dollar to the ringgit, which may adversely impact margins of companies such as UMW Holdings Bhd and Tan Chong Motor Holdings Bhd,” it said.

The vehicle sales tax exemption was announced in June 2020, under the short-term economic recovery plan or Penjana.

Under the exemption, locally-assembled cars are fully exempted from the sales tax, while for imported cars, the sales tax has been reduced from 10% to 5%.

The tax holiday was initially supposed to last until the end of 2020. However, it was extended to June 30, 2021, and then again until the end of the year.

During the tabling of Budget 2022 in October last year, the government announced that the sales tax exemption would be extended one more time until June 30, 2022.

The multiple extensions were mainly due to the repeated lockdowns over the past two years, which disrupted business operations and prevented car buyers from being able to fully enjoy the benefits of the tax holiday.