Retail in Asia

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Malaysia retail collective hits out at proposed luxury goods tax

The Malaysian government’s proposed luxury goods tax has sparked concern from a bevy of local retail associations, who have collectively demanded the government to “re-think and withdraw” the proposal.

SEE ALSO: Malaysia’s Q3 retail sales increase 96 percent

The eight organisations — made up of BBKLCC Tourism Association Kuala Lumpur, Batu Road Retailers Association, Bumiputra Retailers Organisation, Federation of Malaysia Business Associations, Industries Unite (IU) Malaysia Retailers Association, Malaysia Retail Chain Association, and the Persatuan Pengurusan Kompleks Malaysia – Malaysia Shopping Malls Association — said in joint statement to local media outlets on March 5 the government’s  proposed luxury tax “may make pricing in Malaysia non-competitive and may deter tourist arrivals,” adding “Malaysians will be enticed to buy overseas and Malaysians shopping abroad will take money out of the country.”

“This is a lose-lose proposition — losing foreign tourist arrivals and losing Malaysians from buying locally, coupled with the loss of foreign exchange. Even if a mechanism can be designed for foreign tourists to claim back such luxury taxes, Malaysians would still be enticed to do their shopping overseas,” said the collective.

“The luxury tax may encourage black market operations to thrive. This is the same phenomenon of penalising duties and taxes on cigarettes and liquor. The smuggling and black market activities are so prevalent that the government does not collect the intended quantum of taxes.”

The government, helmed by prime minister Datuk Seri Anwar Ibrahim, proposed last month plans to introduce a luxury goods tax in 2023, with a certain limit based on the type of luxury goods, including luxury watches and fashion.

The proposed move comes five years after duties and taxes were removed to make Malaysia a tax-free shopping destination in 2018. According to the collective, some 37 percent of tourists’ receipts which translate to foreign exchange earnings in Malaysia have been from shopping since the lift.

“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,” said the collective.

The government is yet to respond to the outcry from the local retail collective.

The luxury goods market in Malaysia is projected to grow by 3.8 percent from 2023 to 2028, resulting in a market volume of USD 2.3 billion in 2028, according to Statista.