THE luxury tax proposed under the retabled Budget 2023 is being scrutinised, prioritising the people’s best interests, Finance Ministry tax undersecretary Che Nazli Jaapar said.

He said the government is studying other countries’ best practices on how the system can take effect in Malaysia. 

“What are the items, categories of things, or thresholds, and how does the government plan to impose the tax? Will there be new legislation for specific luxury taxes or will the government consider duties on existing taxes, for example, an excise of sales taxes?

“Further engagement with the industry, retailers, manufacturers, and even the tourism sector should be conducted because we do not want the industry to suffer when we implement the tax,” she said during the Budget 2023 seminar in Kuala Lumpur today.

Following the luxury tax proposal announcement, tax experts said the government needs to define the country’s own meaning of “luxury”.

Chartered Tax Institute of Malaysia deputy president Soh Lian Seng said each country focuses on different items to be taxed. For example, China taxes luxury items such as cosmetics, bags, and liquor; Taiwan taxes passenger cars, private jets, and helicopters; Indonesia taxes luxury residences, aircraft, and motor vehicles; and South Korea taxes jewellery and cameras.

“What items are defined as luxury goods in Malaysia? From tax practitioners’ point of view, I can share two scenarios – one of which is whether the imported goods will be subject to import duties or sales taxes. 

“If so, it would depend on a harmonised-systems code. Increasing existing codes or existing rates for certain classes of goods may not be so straightforward. The question here is: Will the requirement impact current custom procedures?” he asked. 

As for the second scenario, Soh questioned whether the government would consider that retailers impose luxury tax as sales tax. 

From April 1, all registered sellers will be charged a flat rate of 10% sales tax on imported low-value goods (LVGs). All taxable goods manufactured locally or imported into Malaysia are subject to sales tax. 

“Retailers are required to register for sales tax on LVGs,” he said, adding that the government indicated luxury tax would be charged on items of a certain value, like luxury watches and fashion items. 

Soh also said the industry is looking forward to clearer indications about the proposed capital gains tax. 

Malaysia’s capital gains tax is chargeable to real property gains tax (RPGT) on gains arising from the disposal of real property (any land situated in Malaysia and any interest, option or other rights in or over such land), including shares in a real property company. 

Che Nazli, however, said double taxation should not be imposed on the disposal of unlisted shares by companies.

“To address companies dumping unlisted shares before the enforcement period, perhaps we should allow for any disposal, report of disposal of unlisted shares, or acquisition of unlisted shares prior to 2023 to be considered RPGT,” she said. – Bernama, March 13, 2023.