INCREASING import duties for certain industries to help encourage consumption of local products could backfire and result in retaliatory action from other nations, said tax experts.

The idea of widening the scope of import duties should only be a temporary measure, they said.

Imposing a long-term import duty on foreign goods might lead to retaliation from the exporting countries, Koong Lin Loong, managing partner of K-Konsult Taxation Sdn Bhd, told The Malaysian Insight.

These nations, in turn, may impose tariffs on Malaysian products, and this will affect exports, hitting our trade figures, he said.

“In the long term especially, Malaysian small and medium enterprises (SME) will face a problem.

“It should not be permanent. When you protect, you protect the kid, not an adult. You let the kid grow up and compete with others.

“In the long term, it is to encourage Malaysian companies to have products which can compete with overseas goods in terms of quality and pricing.”

Automobile and agricultural products sourced from abroad are some examples of goods subjected to import duties.

The rationale of the tax is to protect and spur an appetite for local products in the same category.

Prime Minister Dr Mahathir Mohamad said last Tuesday that the government may consider restructuring the tax policies to skew them more towards imports.

However, he acknowledged that while the government could change the policies, it could not force people to buy local.

Koong said the government could protect local industries with the potential to grow and compete with international brands by imposing import duties on the same imported products.

However, this should only be a temporary measure and not made permanent, he said.

Asked if there will be any impact of liberalising a product after a certain period, Koong said the prices of Malaysian products will remain more affordable given the lack of logistics expenses as opposed to imported goods.

On the brighter side, Malaysian companies may already have the experience of producing quality goods by the time the segment is liberalised.

Proton, he said, is one good example of protectionism. In order to spur the growth of the local automobile industry, the government imposed import duties on foreign car brands.

If restructuring is to take place, it will entail the widening of the scope of goods taxed, Koong said.

He said the automobile, agricultural and luxury goods segments could be some of the sectors involved.

Senior Research Fellow at Malaysian Institute of Economic Research, Dr Shankaran Nambiar said if restructuring is to take place, the policies are likely to be skewed against imports.

This would mean raising import duties on goods for which locally produced alternatives exist.

The idea is to discourage imports and allow local industries to grow, he said.

The automobile industry could benefit from such tax policies, Shankaran said, adding that iron and steel, which are inputs to a wide range of industries could be targeted.

“The newly formulated tax structure will possibly attempt to modify consumption patterns – and it might be successful in doing so.

“Whether that will lead to an improvement in the quality of locally produced goods and whether it would spur them into achieving a level of quality that enables them to break into international markets is quite another question.

“Hopefully that will be the case because if it does not, it will imply a loss in consumer surplus.” – April 23, 2019.