'Car industry will be able to make smooth transition to GST'

'Car industry will be able to make smooth transition to GST'

Customs Department Director of GST Datuk Subromaniam Tholasy (pic) believes the automotive industry will be able to make a smooth enough transition to the GST in April.

He notes that under the GST law, there is a 20 per cent method for stock on hand.

Based on this, he says, stocks held on hand at March 31, 2015 will get back the 100 per cent sales tax they had already paid the Customs Department "if they can show they have the import documents or local invoices from the assemblers and manufacturers that shows the 10 per cent sales tax clearly on their invoices."

But if the trader did not buy directly from the manufacturer or import directly, then the stocks would have changed hands.

"In some cases (for most items), the value would have gone up several times compared to the original selling price from manufacturer or the importer; hence we only give a refund of 20 per cent of the purchase price.

"The 20 per cent does not mean 20 per cent sales tax. It could be more than 20 per cent in terms of tax because the purchase price is now higher than the import price or manufacturer's price.

"For most items, it is around 40 per cent to 60 per cent depending on the trade and distribution margin from the producers' price or the import price," he says.

As for complaints that the 20 per cent method ends up with car companies and dealers that do not import directly or buy directly from the plant having to suffer a heavy burden from holding on to stocks where they paid higher sales tax and not being able to claim a full refund, Subromaniam believes stock on hand is only a temporary issue.

"Compared to the TIV (total industry volume) for any one year, stock on hand for this industry is almost negligible.

"They should average it out and pass down the cost savings to consumers," he says.

As for imported cars, Subromaniam says the Customs has bonded facilities.

"Sales tax is not payable until it is taken out from the bonded warehouse. There is no issue of embedded sales tax for cars kept in a bonded warehouse."

One other problem raised by the industry is that the demo cars and test drive cars are not allowed to claim refunds for the 10 per cent sales tax paid because nobody buys them although these are an essential part of their business.

Subromaniam says these sets are not held for sale so they are not eligible for the special refund unless they intend to sell those cars by treating it as stock held for sale on March 31.

On the question of the 6 per cent GST being charged based on a higher base because it is the price of the car on the road so it includes accessories, car insurance, profit margin and extras compared to the 10 per cent SST, which is based on nett selling price (excluding profit margin and accessories), Subromaniam acknowledges that the basis is different.

"The difference is not a full 4 per cent . It is much less. The distribution margin typically is not taxed under the GST.

"According to our computation, for most cars, even after taking into account the distribution margin, the price is expected to be slightly lower under the GST."

Subromanaim stresses that one very important factor in the car industry is it has become very efficient and competitive.

"Tax is just one factor. The manufacturers should reduce the prices if the production cost is lower due to lower raw materials and component prices," he says.

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