PUTRAJAYA’s proposal to impose a luxury goods tax on certain types of luxury items such as watches and fashion accessories is giving those in the tour and travel industry the jitters.

A hotly debated topic, there is a fear among them that the tax will cause Malaysia to lose its reputation as a shopping paradise which will see a drop in the number of tourist arrivals.

In 2021, there were approximately 134.7 thousand tourist arrivals in Malaysia. The Visit Malaysia 2020 campaign was hoped to increase tourist arrivals, however, the Covid-19  outbreak, which resulted in travel restrictions worldwide, put paid to that campaign.

Malaysian Chinese Tourism Association (MCTA) president Paul Paw is among those who fear tourists who come purely to shop for cheaper luxury goods will now opt to travel to the fashion capitals of the world instead, to buy what they’re looking for.

He said with the tax, the price of some luxury goods in this country would be on par with the countries where they are produced.

Paw said at present, many luxury and branded goods are cheaper here compared to elsewhere.

That’s the reason why these tourists, who are after cheaper luxury and branded items, come to Malaysia in the first place, Paw told The Malaysian Insight.

“They see our prices as being cheaper. The weak ringgit also makes shopping here more attractive.

“But if the luxury tax is imposed, prices will go up, making these goods more expensive than those found in neighbouring countries.”

Paw said tourists are not spoilt for choice when it comes to luxury goods.

“Now with fewer choices and goods becoming expensive, do you think these tourists will still come to Malaysia in search of luxury items.

“I think even us Malaysians will choose to go abroad to shop.”

Paw said when that happens, the government will have a new problem to deal with, stemming capital outflow.

“It’s not the time to impose a luxury tax. The government should first focus on improving the economy and finding ways to make tourists spend more.

“The tourism industry has not fully recovered from the Covid-19 pandemic as the number of foreign tourists arrivals is not at pre-pandemic levels yet.”

Malaysian Chinese Tourism Association’s (MCTA) Perak chapter chairman Law Weng Sum suggested the government look elsewhere for tax revenue.

He said the government could consider imposing an entry tax that most neighbouring countries have.

Law pointed to Thailand which started imposing an entry tax in June.

The amount, he added, should not be too high where tourists could feel the pinch.

Lose-lose proposal

Law said the luxury tax will just dampen any incentive for tourists to come to this country, let alone go on a shopping spree.

“It will decrease their appetite to spend.”

As it is, Law said, Malaysia’s tourism will definitely take a hit which in turn could dampen the economic recovery.

Eight major retailer associations in the country have also urged the government to trash the luxury tax proposal altogether.

In a joint statement recently, the retailers pointed out that if luxury goods are too expensive, it would deter tourists from coming to Malaysia.

“This is a lose-lose proposal, losing not only foreign tourists but also Malaysians’ ability to spend locally, coupled with the loss of foreign exchange,” the statement said.

The statement, jointly issued by the Malaysia Shopping Malls Association, BBKLCC Tourism Association Kuala Lumpur, Batu Road Retailers Association, Bumiputra Retailers Organisation, Federation of Malaysia Business Associations, Industries Unite, Malaysia Retailers Association, and the Malaysia Retail Chain Association, said that even if a mechanism to refund the luxury tax for foreign tourists could be drawn up, Malaysians would rather spend overseas.

On February 24, Prime Minister Anwar Ibrahim in presenting the revised Budget 2023 to parliament, announced the government’s plans to introduce the luxury goods tax this year.

He said the tax will be set according to the type of luxury goods, including watches or designer bags.

In 2020, during the spread of Covid-19, Malaysia’s tourism statistics was at 3.38 million, a 84.75% decline from 2019.

In 2019, the figures were at 22.2 million, a 1.95% increase from 2018.

Malaysia saw 21.77 million tourist arrivals in 2018 while in 2017, Malaysia received 20.31 million tourists. – March 21, 2023.