October 27, 2023
KUALA LUMPUR – Eight months since “Luxury Tax” was first mentioned and after countless debates among the industry players, the government is said to have listed several possible taxable luxury goods.
According to informed officials, the tax – now known as the High Value Goods Tax (HVGT) – is expected to be imposed for big-ticket items such as private jets, yachts, jewellery and luxury cars.
The Star has also learned that there will also be thresholds for these items to be taxed such as only cars sold above RM200,000, watches priced more than RM20,000 and jewellery worth RM10,000 and above.
The items and the thresholds were listed in a guideline provided by the Finance Ministry for the industries to give their feedback on, the official said.
Meanwhile, tax expert Datuk Koong Lin Loong said that there should be more detail on the overall mechanism, which includes the sub-categories of each item that would be taxed.
“However, at the same time, EVs are exempted from tax as part of encouraging the public to switch to environmentally friendly cars. So it would be contradictory,” he told The Star.
Koong also said there should be clearer guidelines for operators to adopt the new tax policy.
During the tabling of Budget 2024 on Oct 13, Prime Minister Datuk Seri Anwar Ibrahim announced that the government would introduce HVGT for luxury items at the rate of between 5% and 10%.
First tabled in the revised Budget 2023 in February, Anwar, who is also the Finance Minister, said the move was to increase the country’s tax base by imposing taxes on those who had the means.
Koong, who is also the Associated Chinese Chambers of Commerce and Industry of Malaysia (ACCCIM) treasurer-general, said the implementation of the tax has been set for May 1 next year, adding that it would be too soon.
“We need more time before we can implement the new tax. This is because there are still a lot of things that the government needs to iron out.
“They need to engage with the specific industries involved, not only general groups. For this, we need about 12 months before implementation,” he said.
Among the concerns include the mechanism to deal with different tax rates for different items, said Koong.
“Compared to the Goods and Services Tax (GST) that was once implemented, business operators only need to key in a similar tax rate at 6%. However, with this new tax, there would be different rates as the proposed range was between 5% and 10% depending on the item.
“If the operators make an error, they could be penalised, hence, increasing the cost of doing business,” he said.
Koong said there were also no revenue projections by the government on the HVGT while there was an absence of estimated administrative costs of the implementation.
“As we know, tourists are exempted from this new tax. If they purchase high-value products in Malaysia, they could claim a refund at the airports or any exit points similar to GST.
“How much would the administrative costs be then? Would the cost to set up the counters or kiosks be worth it with the expected revenue?” he added.
Economist Geoffrey Williams concurred, saying that it would not be worth it as the expected tax revenue generated through HVGT is not significant enough.
“If the tax covers all luxury goods, it might raise RM800mil to RM900mil at a 10% rate. Exclusion of tourists will reduce this amount.
“It would be better that tourists pay the tax just like everyone else and allow suppliers to discount the prices if the tax affects the demand,” he said.
Sales and Services Tax (SST) in 2022 generated a total of RM31bil, while in 2017, GST generated over RM44bil in revenue.
Putra Business School economist Assoc Prof Dr Ida Yasin said the tax rate should be more than 10% as the current proposed range is still considered low.
“The move to tax highly valued goods is a right one but I think it should be higher than 10%.
“If we look at other countries, their GST has reached 10% or even more. The whole point is to generate more income for the country,” she said.
Economist Prof Emeritus Barjoyai Bardai said he believed that the newly introduced tax would be further refined as the current proposal was just to “test the water”.
“I believe that the government will see how successful the tax will be. In the future, maybe more items will be added to the list,” he said.