Rethink and withdraw proposal to impose luxury tax, say retail associations in MY

Retail companies are protesting the government’s decision to tax luxury goods, citing that it will dissuade tourists from visiting the country. PM Anwar Ibrahim revealed during the retabling of Budget 2023 that the government will increase taxes on individuals who fall within the upper income bracket.  “Some of the items included are luxury branded watches and branded fashion goods,” said PM Anwar. However, a clearer outline will be revealed in the near future. 

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According to a joint statement by multiple Malaysian retail associations, including Malaysia Shopping Malls Association and BBKLCC Tourism Association Kuala Lumpur, said that introducing a luxury tax would make Malaysia non-competitive and may even deter Malaysians from buying luxury goods locally and go overseas to do so instead, which they deemed a "lose-lose proposition".

"We collectively urge the government to re-think and withdraw the proposal to impose a luxury tax," it said. The statement detailed that the definition of luxury is fraught with subjectivity, and it is "impossible" to be definitive nor absolutely objective. “Value is perceived based on quality, specifications, reliability, design, efficiency, market demand, and as such a single price-point cannot be a determinant for value or luxury,” it said.

Moreover, it urged the government to rethink the proposal given neighboring states are now developing their respective tourism industry as a major contributor to their economy. Likewise, Malaysia has been positioning itself as a “shopping haven” and policies have been promulgated over the past many decades to position Malaysia as tourist friendly and a shopping haven, the statements said.

It added that duties and taxes were removed to make Malaysia a tax-free shopping destination so much so that in 2018, 37.6 % of tourists’ receipts which translate to foreign exchange earnings in Malaysia have been from shopping.

"Shopping and entertainment are must activities to attract tourists and is the most open-ended spending budget. Tourists will carefreely spend for shopping and entertainment if the choices are there. The taxes which were removed previously by the then Tourism Minister, has made prices in Malaysia attractive or at par with Hong Kong, Indonesia, Thailand and Singapore, our immediate competitor for the tourist dollar and foreign exchange,” said the statement. As such, the imposition of a Luxury Tax may make pricing in Malaysia non-competitive and may deter tourist arrivals.

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Commenting on the spend for Malaysians, the statement also said the move will deter Malaysians from spending within and instead entice them to buy overseas. “This is a lose-lose proposition - losing foreign tourist arrivals and losing Malaysians from buying locally, coupled with the loss of foreign exchange,” the statement read. “The luxury tax may encourage black market operations to thrive. This is the same phenomenon of penalising duties and taxes on cigarettes and liquor,” it added.

The body added that if the economic philosophy is to tax the rich, perhaps, only big-ticket ostentatious products should be adequate to meet this criterion. Big-ticket items were described as sports cars, racing motorbikes, yachts and aeroplanes may be considered. A

ccording to a statement to the press by Malaysian Association of Tours and Travel Agents (MATTA) in February, they stated their hope for a more tourism-friendly budget with better incentives and funding that would help industry stakeholders. It also offered a budget proposal for an attractive tax relief to be provided to encourage individuals to travel domestically. “The budget may need improvements with special emphasis and incentives on tourism products and infrastructure to ensure that the Malaysian tourism industry retains its cutting edge in the long term,” added Datuk Tan Kok Liang, MATTA's president. 

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