Is Luxury Goods Tax a Good Way to Raise Revenue?

The Finance Ministry is finalising several policies related to the high-value goods tax, including the type of items that would be levied.  An economist described the tax on luxury goods, which was expected to be implemented on May 1, an effective way to expand the government’s tax base. It will not burden the B40 lower-income group.

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

The proposed rate of between 5% and 10% was viewed as 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%.

Source: https://www.linkedin.com

Tax revenue-to-GDP ratio for Malaysia has been declining steadily over the decades. 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%).

Expanding the tax base is important. Hence, the view by some, to re-introduce the GST. That’s silly! Net receipts from GST will only make sense if it is 6% or above. That will drive inflation up. Then again, we are not a developed nation nor our Gini-coefficient below 0.35 (it is currently hovering around 0.4). So, if not for GST what else? We could do a Tobin tax, broaden the excess profit tax or consider an inheritance or wealth tax!

Reference:

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

23 March 2024