Retailers are eagerly awaiting further information from the government regarding the proposed taxation of luxury goods, expected to be introduced next year, with rates ranging from 5% to 10%. There may also be considerations for specific sub-categories within this taxation structure, as indicated by tax experts.
The potential impact of this luxury goods tax is generating discussion in various quarters. One key concern is the threshold at which items become taxable, as setting it too low could have repercussions. It’s worth noting that these luxury items might also be subject to a 6% sales tax.
One factor that’s drawing attention is the impact on local retailers. If affluent local consumers reduce their spending on luxury items, it could put local businesses at a disadvantage. Many retailers are still in the process of recovering from the losses incurred in recent years due to the COVID-19 pandemic.
It’s important to note that foreign tourists are likely to be exempt from the luxury tax. However, the burden of this tax may largely fall on local retailers, especially if wealthy residents opt to make their luxury purchases during overseas trips. This raises questions about the practicality and effectiveness of taxing high-income individuals in this context.
In a parallel development, there are concerns regarding the sudden increases in the sales tax. Such abrupt changes in taxation policies may not be seen in a favorable light, as they could appear to be aimed at improving revenue figures rather than being well-considered measures. Recently, Deputy Minister of Finance I, Datuk Seri Ahmad Maslan, acknowledged an error in early budget documents due to a late decision to raise the service tax just before the tabling of Budget 2024 on October 13.
In retrospect, these measures may not have been necessary if the Goods and Services Tax (GST) had been reintroduced. The discussion around the potential reintroduction of GST ultimately hinges on the political will to implement a broad-based tax. However, this decision may be influenced by the upcoming general election, which is still a few years away.
In line with these considerations, Inland Revenue Board CEO Datuk Mohd Nizom Sairi has expressed that an electronic invoicing system could prove valuable in the event of GST reintroduction, further highlighting the potential complexities surrounding tax policy decisions.
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