29-3-2024 (KUALA LUMPUR) In a move that has elicited sighs of relief from industry players and stakeholders, the Malaysian government has postponed the implementation of the highly contentious high-value goods tax (HVGT), originally slated to take effect on May 1st. The unexpected delay has reignited debates surrounding the country’s tax regime, with many calling for a comprehensive overhaul.
Deputy Finance Minister Lim Hui Ying confirmed the deferment in a statement to The Star, citing the need for further engagement with industry stakeholders. “The government needs to continue engaging with the industry to ensure the tax principles and legislation can be formulated and drafted carefully,” she stated on March 28th.
According to Ms Lim, the ministry is in the final stages of refining critical aspects of the tax structure, including the classification of “high-value” goods, threshold determination, and tax rates. She emphasized that the HVGT would only be imposed on certain goods deemed high-value, based on a predetermined threshold, and that low-income groups would be largely unaffected, as they are unlikely to purchase such luxurious items.
In a bid to mitigate potential adverse effects on the tourism sector, the government has proposed implementing a Tourist Refund Scheme. “Foreign tourists who purchase high-value goods in Malaysia can claim a tax refund at international airports before departure, subject to the prescribed procedures and conditions,” Ms Lim explained. Additionally, the HVGT will not be imposed in designated areas such as the islands of Labuan, Langkawi, Pangkor, and Tioman, as well as free zones and licensed warehouses.
The deputy minister assured that the ministry would adopt an inclusive approach in formulating the HVGT policy, seeking industry views and stakeholder feedback through a series of meetings. “This is to ensure that the policy would take into account various aspects, including its impact on the economy, businesses, and cost of living,” she added.
The HVGT Bill, initially scheduled for parliamentary debate on March 27th, was unexpectedly withdrawn, leading to speculation about the government’s plans. A source revealed to The Star that the administration has yet to decide whether the Bill will be tabled during the next parliamentary session, slated for June 24th to July 18th.
Industry stakeholders, however, have expressed reservations about the proposed luxury tax, citing its potential to undermine the country’s economic competitiveness and burden businesses with a convoluted tax regime.
Koong Lin Loong, treasurer-general of the Associated Chinese Chambers of Commerce and Industry of Malaysia, voiced concerns about the lack of clarity surrounding the HVGT system and mechanism. “It not only affects the overall Malaysian economy but also poses difficulties for businesses, especially the retail sector, due to the complicated HVGT refund system,” he warned.
Datuk Koong further cautioned that the introduction of multiple tax systems could create a negative perception of the country’s economy, ultimately leading to higher taxes for consumers. Instead, he advocated for replacing the HVGT, service tax, and sales tax with a more streamlined goods and services tax (GST), which he believes would establish a fairer system with an input and output tax refund mechanism.
Echoing similar sentiments, Ng Yih Pyng, an adviser to the Federation of Goldsmiths and Jewellers Association of Malaysia, applauded the deferment of the luxury tax, asserting that Malaysia is not yet prepared for such a tax regime. “Although the HGVT may appear simple, there are various definitions under the proposed tax. It’s complicated and involves many nitty-gritty details for each product category and type. We hope that this will not be implemented but replaced with something better,” he remarked.
Norsyahrin Hamidon, president of the Malay Chamber of Commerce Malaysia, questioned the effectiveness of a multiple tax system for different groups and advocated for the reintroduction of the GST. “GST has been implemented all over the world. We don’t quite understand why the government doesn’t want to revert to the GST despite research and surveys pointing to its benefits,” he lamented.
Mr Norsyahrin suggested implementing the GST at a lower rate of 2 to 3 percent, noting that the previous 6 percent rate might not be feasible in the current economic climate.
