When it comes to luxury items, Malaysians have always loved the idea of buying the best handbags, watches or jewels out there. It's no surprise at all when I can see a line outside Louis Vuitton almost every weekend, no matter what the economic condition is. Most of these patrons lining up wear the simplest of clothes with flip flops and are fairly young looking.
We have always had the privilege of enjoying tax-free luxury items in Malaysia all these while. However, that would change very soon as we get ready to bid farewell to tax-free luxury shopping in Malaysia! As part of the Revised Budget 2023 under the administration of PM 10, Datuk Seri Anwar Ibrahim, which aims to generate additional revenue for the country's coffers. The Malaysian government has announced plans to impose a Luxury Goods Tax on certain types of high-end items starting in 2023.
However, the Malaysian government is still finalizing the definition of luxury goods, as well as the rate and coverage of the Luxury Goods Tax. Deputy Finance Minister Steven Sim has assured the public that the government is carefully fine-tuning the details before making any official announcements. Malaysians can expect to hear more details about the Luxury Goods Tax in June 2023.
The Affected Circle
The world has come to a point where the rich are only becoming rich and the poor remain poor. As much as we try to close this gap, we know this is almost impossible given the circumstances that come with it.
Therefore, the scope of the tax must be limited to a narrow list of items, or above a value which will not affect the middle class or the M40. Effectively, this should only affect the T20.
The main purpose is to broaden the tax base and, in a way, to redistribute the wealth from the ultra-rich to the others. Equally important in light of the current budget deficit we are facing, is to generate additional tax revenues to reduce the deficit. Although the amount collected may be small when compared to the expected tax collection by IRB and Customs of RM164 billion and RM54 billion respectively, every extra million helps.
The definition of 'luxury' is so wide that the term needs to be redistributed to those who own luxury handbags like Coach and LV, watches like Rolex or Patek Phillipe as well as private yacht and jet owners. Chocolates like Lindt are also considered luxury items but not in this threshold value hence we draw the line for taxation at the former mentioned products.
For example in the case of gold jewelers, people from the lower end up to the higher end buy gold for both investment purposes and for personal enjoyment. It may not be appropriate to impose luxury tax on items that may be expensive, but it is bought by both the rich and the middle class.
Ultimately, it is extremely important to study the economic profile of the buyers.
We've been taxed for many items in Malaysia, and looks like its on to the things we buy for personal pleasure and wealth status, luxury.
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