Tax expansion poses limited direct impact on auto sector

New Straits Times

20-06-2025

KUALA LUMPUR: The upcoming expansion of the service tax scope, effective next month, will have a limited direct impact on Malaysia's automotive sector, according to CIMB Securities Sdn Bhd.
The firm said this is because vehicle sales are already subject to a 10 per cent sales tax, while maintenance and repair services incur an eight per cent service tax.
"That said, there may be a slight increase in dealership and showroom rental costs due to the measure, although we believe the impact will be minimal.
"Indirectly, however, weaker consumer sentiment could weigh on new vehicle sales in the second half of 2025 (2H25)," it added.
CIMB Securities also highlighted that the Malaysian Automotive Association has forecast a 4.5 per cent year-on-year (YoY) decline in total industry volume (TIV) to 780,000 units in 2025. This is attributed to demand normalisation and a reduced industry order backlog.
The firm said MAA also flagged global economic uncertainty, exacerbated by US-China trade tensions, as a risk to Malaysia's economic outlook.
In addition, the government has postponed the implementation of the revised open market value (OMV) calculation from January 2025 to January 2026.
CIMB Securities views this delay as a short-term positive for the sector, as the new OMV formula could raise the average selling price of locally assembled vehicles by 10–30 per cent, based on MAA estimates.
The firm also expects a sharper seven per cent YoY decline in TIV to 760,000 units, mainly due to potential headwinds such as the planned removal of the RON95 petrol subsidy in 2H25.
"Despite this, we expect demand in the sub-RM100,000 segment to remain resilient, supported by national brands and selected entry-level Japanese models.
"The government's plan, outlined in Budget 2025, to retain subsidies for at least 85 per cent of RON95 users should help cushion the impact and support affordability in the mass-market segment.
"Consequently, we project national brands to retain a dominant 64.5 per cent market share in 2025, with non-national marques accounting for the remaining 35.5 per cent," it said.
Furthermore, CIMB Securities believes the removal of fuel subsidies could further accelerate battery electric vehicle adoption.
The firm also expects a potential spike in electric vehicle (EV) demand in the fourth quarter of 2025 as buyers rush to benefit from tax savings. Full duty exemptions for imported EVs are set to expire by the end of 2025, and the government is unlikely to extend them beyond the December 31, 2025 deadline.
"Within our coverage, Sime Darby Bhd is well-positioned to ride this wave, supported by its expanding EV line-up across brands like BMW, Mini, Porsche, BYD, and Volvo," it said.
Overall, CIMB Securities has maintained a "Neutral" rating on the auto sector due to a subdued growth outlook amid intensifying market competition.
It noted that Sime Darby remains its top sector pick, supported by earnings recovery in the Australian mining sector, a broad EV portfolio, its stake in Malaysia's auto market leader Perodua, and the potential monetisation of non-core and land bank assets.
Moving forward, the firm said key catalysts for the sector include the strengthening of the ringgit against the US dollar and Japanese yen, a reduction in interest rates, and favourable government policies aimed at reviving domestic demand.
Key downside risks to its call include depreciation of the ringgit, interest rate hikes, and weaker consumer sentiment stemming from the potential subsidy rationalisation programme and new taxes.