Luxury goods tax to be implemented soon.

Luxury goods tax a good way to raise govt revenue, says economist

PETALING JAYA: An economist has described a tax on luxury goods, expected to be implemented on May 1, as an effective way to expand the government’s tax base without burdening the majority of the population, especially the B40 lower-income group.

Lai Wei Sieng of Universiti Kebangsaan Malaysia said those who would purchase luxury goods were high-income earners, namely some of those in the middle-income M40 group and a majority of the high-income T20.


“Those who can afford to buy luxury goods would not be turned off by the additional 5% or 10% increase in the price,” he told FMT.

Earlier this week, the finance ministry said it was finalising several policies related to the high-value goods tax, including the type of items which would be levied. The ministry is also looking at the price threshold that would determine what is a high value item.


The luxury tax is expected to apply on items such as jewellery and watches that exceeded a certain price threshold. It is expected to earn the government RM700 million annually.

Lai also said the proposed rate of between 5% and 10% was reasonable, when compared to other countries like China and Indonesia.

China’s luxury tax is reported to be between 30% and 40% on imported high-end goods, with the Chinese government considering lowering it by 10%. In Indonesia, the tax ranges from 10% to 95%.

Lai said the expected revenue from the tax meant that the government could channel the funds for development and help reduce the national debt, which had ballooned to RM1.08 trillion in 2022.

“The HVGT can help the government without affecting the cost of living for many,” he said, adding that the government’s plans to allow tourists to claim relevant tax refunds before departure would not discourage them from buying luxury goods.

Yeah Kim Leng of Sunway University said the tax revenue-to-GDP ratio has been declining steadily over the decades and now ranks lower than some of Malaysia’s regional peers.

In 2021, the Organization for Economic Cooperation and Development (OECD) reported that Malaysia’s tax revenue-to-GDP ratio stood at just 11.8%, lower than Thailand (16.4%), the Philippines (18.1%) and Vietnam (18.2%).

Yeah, who sits on a special advisory body to assist Anwar Ibrahim as finance minister, said higher tax revenue is needed to restore the government’s fiscal position that has been in deficit since 1998.

“Expanding the tax base (including via the HVGT) will strengthen the government’s fiscal resilience, allowing for better response to economic downturns,” he said.

A broadening of the tax base will also increase the government’s fiscal resilience and enhance its ability to mount counter-cyclical spending in the event of an economic downturn caused by external factors.

“The small tax base coupled with the past legacy of pro-cyclical and deficit government spending that resulted in a rapid increase in public debt is not sustainable in the medium term,” he said.

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Posted on 26-Mar-2024