Scrapping luxury tax a relief for retailers, say experts
KPMG Malaysia head of tax Soh Lian Seng said while the government had officially shelved the standalone HVGT, it had not abandoned the idea of taxing luxury consumption.
"Rather than introducing a brand-new tax with its own rules, thresholds and enforcement challenges, the government is leveraging an existing system that businesses are familiar with," said Soh.
He added that the higher sales tax of five per cent or 10 per cent on luxury and discretionary items was likely to shift consumer behaviour, especially among price-sensitive buyers.
While short-term demand might soften, he said, the fundamentals of Malaysia's luxury market were expected to remain strong, supported by rising affluence and continued interest from foreign tourists.
Economist Dr Geoffrey Williams said the HVGT and low-value goods taxes distorted the market and imposed a significant administrative burden on the Inland Revenue Board.
He said that these taxes generate so little revenue that they were hardly worth the effort and cost of implementation.
Removing the tax would simply return the system to the status quo, with no significant impact other than the forgone revenue, he added.
Nevertheless, Williams said, there should be a full review of the taxation system as it was a mass of ad-hoc taxes for ill-defined purposes, inefficient in raising revenue and causing market distortions.
He said one alternative is an electronic payments tax, which is a tiny tax on electronic transactions.
SME Association of Malaysia national president Dr Chin Chee Seong said the association believed there should not have been a luxury goods tax in the first place, as it was difficult to implement effectively.
He added that if luxury items were taxed and become too expensive locally, affluent consumers might buy them overseas, such as in Singapore or other countries.
"Those who can afford luxury items often travel, so imposing such a tax doesn't make much sense to us."
Overall, Chin said, the removal of the luxury goods tax helped create a more level-playing field for domestic businesses.
He added that businesses and SMEs were relieved and welcomed the move, as it eased the burden on businesses operating in the luxury segment.
In a written parliamentary reply on Tuesday, Prime Minister Datuk Seri Anwar Ibrahim, who is finance minister, said the government discontinued the implementation of the HVGT.
"However the principles for the imposition of the HVGT have been incorporated into the sales tax review where luxury and choice goods are taxed at a rate of five per cent or 10 per cent."
He added that the revision of the Sales and Service Tax, which took effect on July 1 this year, was expected to increase revenue by RM5 billion in 2025 and reach RM10 billion in 2026. Additional reporting by Zaf Seraj and Iylia Marsya Iskandar
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