KUALA LUMPUR: The government's incentive to reduce the sales tax for new vehicles for six months till December is a much needed boost to revitalise the market, industry players said.

Malaysia fully waived the sales tax for locally-assembled vehicles and 50 per cent reduction for fully-imported cars to help the local automotive sector recover from the Covid-19 crisis.

Under the Economic Recovery Plan or Penjana, Prime Minister Tan Sri Muhyiddin Yassin said the move was aimed at spurring the growth of the local industry.

"The government has agreed to exempt sales tax up to 100 per cent for completely-knocked down (CKD) passenger vehicles and 50 per cent on completely built up cars (CBU) from June 15, 2020 to December 31, 2020," he said in a special televised address after announcing the short-term Economic Recovery Plan on Friday.

Malaysian Automotive Association (MAA) lauded the move, saying it would help the industry brace the post Covid-19 crisis.

MAA president Datuk Aishah Ahmad said its members were relieved and pleased with the incentive.

"Car purchases are big ticket items as only people with the means can afford it, especially during this period. The banks also are stricter in approving loans as the quantum is getting smaller," Aishah told the New Straits Times (NST).

She said customers would benefit from the temporary sales tax exemption as they would be paying zero-tax for CKD vehicles and 5.0 per cent for CBU cars.

MAA expects to revise upward its total industry volume (TIV) projection of 400,000 units after the mid-year in anticipation of higher car sales in the second half.

"We think the TIV for 2020 will increase more than our recent forecast, backed by this incentive. However, it is still early to predict whether our initial projected TIV of 607,000 units earlier this year would be achievable," she added.

Aishah said the sales volume would be dependent on the customer's acceptance of new car prices, banks' loan approval rate, buyers' confidence level and appetite.

International Trade and Industry Ministry and Malaysia Automotive, Robotics and IoT Institute (MARii) chief executive officer Datuk Madani Sahari said the government's incentive was a positive light to the automotive sector.

"Firstly, it encourages consumers to expedite their decision to buy the car they need, instead of prolonging purchases due to conservative sentiment.

"Secondly, it is a highly strategic decision as the obvious benefits from a set time period for the tax holiday allows the auto sector to be in a better position to predict when sales will increase," he told the NST.

He said consumers that are in need of new vehicles should take advantage of the six-month period.

European Union-Malaysia Chamber of Commerce and Industry (EUMCCI) chief executive officer Sven Schneider said car-makers were suffering tremendously during the Movement Control Order (MCO) period.

"As statistics have shown sales almost came to a halt. Providing sales tax exemptions seems an appropriate mechanism to spur car sales until the end of the year and incentive consumer.

"We specifically welcome the initiative to assist car-makers with a sales tax exemption until the end of the year," he said.

Schneider said some EUMCCI members had expressed concerns on Malaysia would still be commercially viable for them.

"We believe this measure is sending a positive signal to European car-makers as well," he added.

Sime Darby Bhd, which currently represents 20 auto brands in nine countries in Asia Pacific, said the move was timely as the industry needed the "boost" in the retail and production of automotive vehicles.

Sime Darby's subsidiary Sime Darby Motors Sdn Bhd is currently the assembler and distributor for the likes of BMW, Mini, Hyundai and Mazda, under its 51 per cent-owned Inokom Corp Sdn Bhd.

Bermaz Auto Bhd executive chairman Datuk Seri Ben Yeoh said the tax concession on sales and services tax (SST) will certainly help to boost sales, ease cash flow and reduce the existing built up inventory and keep the dealer retail networks operating with some revenue.

"The auto retailers will then be able to roll-over their existing stocks and keep their sales resources and activities," he told the NST.

He said the exemption will also ease the distribution pipeline and manufacturing activities can be resumed without pressuring to reduce fix overheads, especially manpower cost.

"The ecosystem in the automotive industry will then be able to activate smoothly again," he added.

UMW Toyota Motor Sdn Bhd president Ravindran K said the initiative was indeed good news for the auto industry as the full savings will be passed on to customers.

"We expect that the reduced prices will help to revitalise the automotive industry," he said, adding that the company already has new models planned for launch this year.

"With the tax exemptions, we will be making the relevant adjustments to the retail prices of all our models and apply them by June 15," he added.

UMW Toyota deputy chairman Akio Takeyama said the company appreciated the support from the government to help boost the industry as the sector has been greatly affected by the long period of inactivity during the MCO period.

Mercedes-Benz Malaysia Sdn Bhd president and chief executive officer Dr Claus Weidner said car sales in the country had suffered greatly during the MCO.

"As we enter the recovery phase, we must grow, learn and be better than before as the automotive industry went through a very challenging period.

"We applaud and welcome the government's decision to implement sales tax exemptions on new CKD and CBU cars as this will help further create demand and stimulate car sales," he told the NST.