PETALING JAYA: While the luxury goods tax proposed by Prime Minister and Finance Minister Datuk Seri Anwar Ibrahim in Budget 2023 has yet to be implemented, an economist said it would not have a major impact on tourism spending.
Universiti Tun Abdul Razak economist Dr Barjoyai Bardai said the tax is “a symbolic gesture to redistribute revenue to the low-income group”.
He said the luxury goods tax is mostly targeted at locals who buy high-end products.
“I don’t believe such a tax would have a major impact on tourism spending as only those in the high-income bracket would be affected by it.
“Furthermore, I don’t foresee the government collecting huge sums of revenue from the luxury goods tax. For one, it has not been introduced yet, so the percentage of the tax is unknown.
“As the tax has yet to be introduced, no one knows how much the government would be able to collect.”
Malaysia Retailers Association representative Dr Kasuma Satria said the quantum of tax for luxury and high-end goods needs to be reasonable.
He said consumers who can afford such items would buy them regardless of the cost, so the retail price after adding on the luxury goods tax would make little difference to those in the high-income bracket.
“The people who purchase luxury goods are highly mobile. So, if the tax is too high, they may decide to buy the items they want when travelling abroad.”
Kasuma said Malaysia is a “shopping haven” for tourists, and many of them come here to buy luxury items. But if these items are taxed too heavily, they too would go elsewhere.
Malaysian Inbound Tourism Association (Mita) president Uzaidi Udanis said many other countries also impose a luxury tax on high-end goods. But they also have a rebate mechanism such as the Value Added Tax (VAT) in the UK, which allows tourists to reclaim the tax.
He said at the moment, the mechanism of how the luxury goods tax would be implemented remains unclear, as the Finance Ministry has yet to provide details.
“There are many duty-free centres in the country and getting tourists to spend their money there is very important. The government should encourage the setting up of more duty-free centres in the country.
“At present, we are facing stiff competition from Singapore when it comes selling luxury items. More tourists, for example those from Indonesia, India and China, prefer to shop for luxury items in Singapore due to its wide range of items.”
Uzaidi added that it was important for the government to inform everyone about the luxury goods tax mechanism as Mita also has to inform its foreign agents about the imposition of such tax.
He said the government has to be clear on the products that will be taxed, adding that leaving the public in the dark for too long was not good for business.
It is estimated that 33.6% of tourist receipts were from shopping. Foreign tourist receipts (expenditures) were RM86.14 billion in 2019.
Tourism Malaysia said shopping receipts had expanded to a 33.6% share in 2019 from 33.4% in 2018 when Malaysia recorded RM7.1 billion in tourist shopping expenditure.
In 2021, the total value of tourism receipts in Malaysia was approximately RM240 million, a sharp decrease from the previous year. This was due to disruptions to the global tourism industry caused by the Covid-19 pandemic.
In Budget 2023, Anwar proposed introducing the luxury goods tax from this year, with a certain value limited to the type of goods, including watches and fashion items. He said the tax would increase national revenue.
Anwar stressed that a more progressive approach to taxation should be taken as a new step to broaden the tax base to cover those who have the means to pay.
He said the government would hold an engagement session with relevant parties to examine the details of his proposal.
