KUCHING: Business leaders are calling for a review of the proposed luxury tax, arguing that it will negatively impact the nation’s economy and people’s livelihoods.
In an interview with New Sarawak Tribune, local businessman Datuk Sim Kiang Chiok said that the implementation of a luxury tax would result in higher prices for luxury items such as high-end watches, designer clothing and handbags, yachts and private jets, top-of-the-line cars, and jewellery.
As a result, the T20 group may decrease their spending, and tourists may be discouraged from purchasing these items in Malaysia.
“Every luxury item purchased by the affluent carries the potential to catalyse a chain reaction that supports the local economy, sparks innovation and creates jobs for those in the luxury goods industry,” he said.
“It’s not just a matter of consumer preference but a complex web of economic relationships and opportunities that must be considered when imposing taxes on luxury goods,” Sim added.
He also drew attention to the potential negative impact of the luxury tax on Malaysia’s competitiveness in the global luxury goods market by mentioning that the country had always compared its prices with other major cities such as Singapore, Hong Kong, London, Paris and New York.
“We reduced or abolished the luxury tax in the 1980s so that we could compete with these cities, particularly Singapore. Reintroducing this tax would be a setback for shopping tourism,” added Sim.
“If the luxury tax is too high, people will choose to travel to other countries to purchase luxury items they desire because prices will be lower there,” he said.
He recommended making the luxury tax refundable to tourists upon their departure from the country if it was implemented. Nonetheless, he cautioned that the tax could lead to an increase in the smuggling of luxury goods and the sale of fake items, causing a disturbance to legitimate traders.
“In such a situation, we will miss out on the money that could have been spent locally. This loss of income would negatively impact the government’s ability to assist those in the low-and middle-income groups.”
Instead of imposing the luxury tax, Sim believed that Malaysia should have done away with import tax duties and levies altogether, whether it was luxury goods or not.
“Taxing goods only at the point of sales will reduce the cost of doing business in Malaysia for importers and traders,” said Sim.
“However, local retailers of luxury goods might experience a business slowdown, and they may be forced to restructure their operations, often leading to job retrenchment,” he added.
He said the people most affected by it would be those who worked in related sectors and had low to middle incomes.
Sim’s questioning of the purpose of the luxury tax reflected concerns that the proposed tax might not have achieved its intended goals and could have inadvertently harmed the Malaysian economy.
“If it’s to tax the rich, the government would be better off taxing them at the income tax stage rather than on luxury goods,” he pointed out. Recently, the Statistics Department estimated that households in the T20 category with a monthly income above RM10,960 experienced a 12.8 per cent decline, causing them to move to the M40 group.
In reference to the luxury goods market as a whole, the businessman observed that the demand for luxury goods was closely linked to individuals’ income levels.
He noted that as income levels increased, there was a disproportionate increase in demand for luxury goods, which made the sector highly responsive to changes in taxation.
“It’s important for the government to define what qualifies as ‘luxury’ items for the tax, taking into account both their values and brand names,” said Sim. “If the tax rate is set too high, people may not be willing to accept it,” he added.
Furthermore, Sim said that the “entry level” of luxury goods subject to the tax might have been affected more severely than established luxury brands.
In agreement with Sim’s perspective, businessman Michael Leong advised the government to exercise caution and precision in defining which goods and services were subjected to the luxury tax.
“Defining what constitutes a ‘luxury’ item and establishing a clear price threshold for taxation is crucial,” said Leong.
“Otherwise, the luxury tax may unintentionally affect middle-income consumers who can afford items priced between RM1,000 and RM5,000. For instance, does jewellery qualify as luxury? Would RM20,000 worth of jewellery purchased from a high-end store be considered luxury? What if B40 parents, who have been saving up for years to buy gold – a norm for certain families – of a similar value for their child’s wedding, would they need to pay luxury taxes too?”
Leong also raised concerns about the lack of consultation with stakeholders before the announcement of the luxury tax.
“Were consultations held with the right parties, and were the concerns of tourism and retail industry players addressed? If the government plans to implement the tax, will it be based on product category, brand, or value?
“Why was the luxury tax created, and what is the reasoning behind it? If the goal is to generate revenue and fund the government’s budget, there are many alternative ways available to do so rather than implementing a luxury tax. I believe that there must be better ways to generate revenue for the government.”
Both businessmen advised the government to provide details on the tax without delay, as the business sector had only just begun to recover. Any delay in making a decision could result in retailers holding back on their expansion plans.
The proposed luxury tax in the retabled Budget 2023 is under scrutiny with a focus on prioritising the interests of the people.
Recently, the undersecretary of the Finance Ministry’s tax division, Datuk Che Nazli Jaapar, mentioned that the government was studying the best practices of other countries and exploring how they could be adapted to Malaysia.
This included identifying the items and categories subject to the tax, determining the threshold, and deciding on the method of implementation, such as enacting new legislation for a specific luxury tax or considering a tax on existing taxes, such as an excise or sales tax.
