KUALA LUMPUR: Car prices are expected to come under pressure from the implementation of the goods and services tax (GST) in April next year, dropping between 1% and 3% in 2015.

Malaysian Automotive Institute chief executive officer Madani Sahari said although the proposed GST rate of 6% is lower than the current sales and services tax of 10%, the anticipated car price drop will also depend on the value determined by the original equipment engineers.

“The government does not control car prices and we shouldn’t because it (automotive market) is a free market,” he told a press conference after the opening of the 2014 Altair Technology Conference here yesterday.

“Based on our simulation studies, we see a decrease in car prices of between 1% and 3% next year after the GST implementation,” he said.

Madani, however, urged car buyers not to refrain from purchasing cars this year.

“That’s because as cars depreciate in value at 10% every year, the difference in value of second-hand vehicles this year and next, compared with purchasing new vehicles next year, will be incremental.

“Let’s say your second-hand vehicle is valued at RM50,000 this year; next year it will be valued at RM45,000.

“But the decrease in car prices next year is only 1% to 3%, so you will be better off selling your cars and buying new ones this year,” he said.

Madani also believes that the GST will improve capital management of companies, provided they are efficient with their balance sheets.

“With the GST implementation, it is value-added across the production chain. Your output tax will be greater than your input tax.

“So what it means is actually, there’s more money into your system. If you manage your balance sheet properly, you have more capital,” he added.

In July, the Malaysian Automotive Association had raised its forecast for the year’s total industry volume (TIV) from 670,000 to 680,000, on the back of a 6.3% increase in TIV in the first half of the year.

Madani said although car sales slowed during the Hari Raya period this year, sales are expected to pick up from this month onwards with the launch of the nation’s first energy-efficient vehicle, Axia, by Perusahaan Otomobil Kedua Sdn Bhd.

This article first appeared in The Edge Financial Daily, on September 11, 2014.