KUALA LUMPUR (March 5): Eight tourism and retail trade associations have urged the government to withdraw the proposal to impose a luxury tax, saying the definition of luxury is subjective.

"Value is perceived based on quality, specifications, reliability, design, efficiency and market demand. A single price point cannot be a determinant for value or luxury. Every product has differing input costs and is not the sole derivative for the decision on pricing," they said in a joint statement on Sunday (March 5).

The tourism and retail groups comprise 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 Malaysia Shopping Malls Association.

On Feb 24, Prime Minister and Finance Minister Datuk Seri Anwar Ibrahim announced in the revised Budget 2023 that the government is proposing a luxury tax for items such as branded watches and fashion items from this year.

However, the tourism and retail groups believe that a proposal like the luxury tax will negate all past efforts and policies by the country to position itself as a tourist-friendly and shopping haven.

"Every country is developing their respective tourism industry as a major contributor to their economy. Likewise, duties and taxes were removed to make Malaysia a tax-free shopping destination so much so that in 2018, 37.6% of tourists’ receipts — which translate to foreign exchange earnings in Malaysia — has been from shopping.

"The taxes, which were removed previously, have made prices in Malaysia attractive or at par with Hong Kong, Indonesia, Thailand and Singapore, our immediate competitor for the tourist dollar and foreign exchange. Most countries in the world have removed taxes to make them attractive as a shopping haven.

"[Thus,] the imposition of a luxury tax may make pricing in Malaysia non-competitive and may deter tourist arrivals. Malaysians themselves will be enticed to buy overseas, which will mean taking money out of the country," they said.

The groups believe the proposed luxury tax is a "lose-lose proposition" where the country will "lose foreign tourist arrivals and lose 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 added.

The tourism and retail groups also highlighted that the proposed luxury tax may encourage black market operations to thrive, likening the situation affecting the local tobacco and liquor industries.

"The smuggling and black market activities are so prevalent that the government does not collect the intended quantum of taxes. If the economic philosophy is to tax the rich, perhaps, only big-ticket ostentatious products should be adequate to meet this criterion. Big-ticket items such as sports cars, racing motorbikes, yachts and aeroplanes may be considered.

"We advocate that our tax policy should not deter and punish success due to entrepreneurship and risk-taking to nurture start-ups and business formation. A holistic view should be taken that will balance between risk and reward, and the flow-through multiplier effect of business activities that contributes to the economic growth of the nation," they added.