Malaysian retailers urge government to withdraw luxury tax proposal

This could deter both foreign and local consumers from shopping in the country

Local retailers have urged the Malaysian government to withdraw its proposal to impose a luxury tax as they could potentially lose their customers to other markets.

During the Budget 2023, the Malaysian government proposed to introduce a tax on luxury items including watches and fashion items, starting this year in a bid to increase revenue collection.

In a joint statement, the eight retail groups said the luxury tax proposal may make pricing in the country “non-competitive” and deter tourists and locals from shopping in 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,” they said.

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The retail associations added that this may also black market operations to flourish, similar to when cigarettes and liquor were penalised with duties and taxes.

When Malaysia removed duties and taxes on shopping, around 37.6% of tourists’ receipts came from foreign exchange earnings from shopping as the move made prices in the country at par with Hong Kong, Indonesia, Thailand, and Singapore.

“We urge the government to judiciously evaluate the entire spectrum of wealth tax, capital gains tax and luxury tax to ensure that such taxes do not deter entrepreneurship and even drive such enterprising individuals and companies to leave Malaysia to venture in other countries instead, and creating a brain drain loss in its wake,” they said.

The joint statement included the BBKLCC Tourism Association Kuala Lumpur, Batu Road Retailers Association, Bumiputra Retailers Organisation, Federation of Malaysia Business Associations, Industries Unite, Malaysia Retailers Association, Malaysia Retail Chain Association, and the Malaysia Shopping Malls Association.