This article first appeared in The Edge Malaysia Weekly on March 6, 2023 - March 12, 2023
On Feb 24, the government said in the revised Budget 2023 that it planned to target the wealthy to expand its tax base, including introducing a new tax on goods such as luxury watches and fashion items. The luxury goods tax will be implemented this year “with a certain limit according to the type of luxury goods”, it added.
Luxury tax is a sales tax or surcharge levied on certain products or services that are deemed non-essential or are only accessible to the wealthiest consumers.
While the move is progressive, many questions remain.
Last week, Deputy Finance Minister Steven Sim said the luxury tax was expected to be rolled out by the second half of this year following consultation with the relevant stakeholders. He acknowledged that there had been concerns raised by the tourism and retail industry players, and reassured the public that a study on the tax structure as a whole was being conducted.
Does this mean the stakeholders were not consulted prior to the announcement? Had consultations been held with the right parties, the issue raised by the tourism and retail industry players would already have been addressed. Why announce a luxury tax if we are not ready to implement it?
Does the government plan to tax based on product category, brand or value? When is a brand considered luxury? Will there be an annual limit one can buy to avoid being taxed?
As the president of the Bumiputra Retailers Organization Datuk Ameer Ali Mydin rightly pointed out, the definition of luxury is subjective. For purposes of brand positioning, companies often come up with terms like “premium luxury”, “super luxury” or “affordable luxury”. But this does not mean that only the super-rich can afford the items.
Is jewellery considered luxury? Would RM20,000 worth of jewellery purchased from an upmarket store be considered luxury? What if B40 Indian parents who have been saving up for years buy gold — a norm for Indians — of a similar value for their child’s wedding? Would they need to pay luxury taxes too?
Malaysia has for years positioned itself to the world as a shopping destination. If the super-rich who shop here are not refunded — for which we have to set up booths at airports — they are likely to take their tourist dollars elsewhere.
The government should not delay providing details on the luxury tax. The retail and tourism industry has only just started to recover. Any delay in the decision could result in retailers holding back on their expansion plans.
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