The Malaysian government said it would suspend the sales tax on locally assembled cars this month until the end of 2020 following a sharp fall in sales in the first five months of the year.

As part of the short term economic recovery plan announced by prime minister Tan Sri Muhyiddin Yassin, sales tax on imported cars will also be cut – from 10% to 5%.

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Vehicle sales data for May has yet to be released but a sharp fall is expected as only some sectors of the economy were allowed to reopen last month following the economic lockdown on 18 March.

Vehicle sales in the country fell by almost 45% to 106,601 units in the first four months of 2020 from 192,971 units in the same period of last year.

Sales in April plunged by over 99% to 141 units, as the government forced the closure of vehicle factories and dealerships across the country as part of the lockdown.

The tax cuts would allow buyers to save up to MYR10,000 (US$2,350) on new car purchases with vehicle manufacturers also expected to make additional discounts to help revive the local car market.

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Local analysts did not believe the tax cuts would have the same impact on the market as they did two years ago when the newly elected government of Mahathir Mohamed announced a three month tax holiday between June and August 2018 which triggered a sharp upturn in sales.

Malaysian consumer and business confidence has been hit hard by the economic lockdown while unemployment has risen and export demand has also been dented by plunging consumer activity in key overseas markets.

UMW Toyota Motor president Ravindran K welcomed the tax cut announcement, however, saying the tax cut was "good news for the auto industry".

"The full savings will be passed on to customers and we expect the reduced prices will help to revitalise the automotive industry".