Earlier this week, Proton announced that it will absorb the sales and services tax (SST) for all its cars registered in the month of September. SST started on September 1 after three months of tax holidays, following the abolishment of 6% GST by the Pakatan Harapan government.
Proton said that the move is to maintain its good recent sales performance, which started with 6,173 cars in June. Boosted by the tax holiday, deliveries jumped to 8,012 units in July – that was not just the highest monthly figure in 2018, but also the best month for Proton in the last 30 months. That record was broken in August with 9,501 units, its best in 35 months.
The carmaker is hoping to maintain momentum by absorbing SST in September, which will also see promotions in conjunction with Merdeka Day and Malaysia Day. Discounts from RM500 to RM1,000 will be offered for the Saga, Iriz and Persona; while the recently launched Ertiga Xtra will be offered with RM2,000 off the list price.
That’s good news for bargain hunters. Although the SST price lists revealed so far have largely seen car prices go down compared to 6% GST days despite sales tax set at 10%, the lowest point was during the tax holiday. Unsustainable diversionary tactic? Proton has issued a statement explaining the 0% SST move.
According to Proton, the decision to absorb SST is to “extend the positive feelings car buyers currently have for the brand,” as shown in recent sales results, and also to give consumers more time to make their purchase decision, “removing the element of being rushed to buy a car.”
Happy customers are likely to stay with a brand by returning to outlets and service centres, which in turn ensures their cars stay within the official servicing network, Proton reasons. The company also reckons that customers will be attracted to the fact that what they pay for a Proton goes directly towards the purchase of the car as opposed to tax.
“The strong sales numbers Proton has achieved over the last three months show an increase in public confidence as more people are choosing our cars due to the attractive overall package offered. Our turnaround plan is therefore taking effect so we have to make sure these customers stay by delivering a high level of customer service,” said Proton Edar CEO Abdul Rashid Musa.
“By setting the SST rate to zero for all Proton cars, we are giving buyers the opportunity to enjoy the same tax-free price as enjoyed by our customers over the last three months. This brings a lot of benefit to them when buying a new car and will help Proton maintain the sales momentum it has recently built,” he added.
Proton insists that the financial equation is simple. By selling more cars, the cost of selling, marketing and building each subsequent unit can be spread out, lowering the average cost. By handing these savings back to its customers, the company is investing back in its own brand future, and by doing so it delivers benefits to car buyers as well, Proton says, calling it a win-win result.
Digging deeper, Proton’s lower cost as a national carmaker helps it to absorb SST. Of course, there’s no CBU or CKD pack import duties, and Proton also qualifies for maximum Industrial Linkage Programme (ILP) excise duty exemptions. ILP is designed to encourage local assembly, so using locally sourced parts, in-house parts, locally built engines and conducting R&D work in Malaysia increases the rate of exemption.
Combine all of the above and the final built-up price before SST is applied (during the final transaction to the end user) is lower than CBU or foreign brand CKD cars. Of course, there are other costs (transport, insurance, sales, marketing) and a profit margin that needs to be factored in, and Proton will have to forego some of the latter to cover the tax waiver.