KUALA LUMPUR: Experts believe that the government's move to introduce a Luxury Goods Tax on products such as high-end watches and high fashion items allows the government to earn more in tax revenues.
However, they feel more efforts were still needed to bridge the income gap between the top 20 per cent (T20) and middle 40 per cent (M40) income groups.
Putra Business School economic analyst, Associate Professor Dr Ahmed Razman Abdul Latiff said it is a good move for the government to introduce the tax on luxury goods because those in the T20 can afford the additional tax imposed on them.
"The T20 controls 47 per cent of the total household income and 80 per cent of the Employees Provident Fund (EPF) savings. They should be able to afford the extra tax imposed on them when they purchase luxury goods like watches and high fashion items.
"The amount collected from the implementation of such a tax will aid the government in its tax revenue on top of the Capital Gains Tax, which will be introduced later in 2024," he told New Straits Times.
He added the T20 would not be too affected from a Luxury Goods Tax, but efforts must be taken to increase the M40's income in order to reduce the income gap.
Economic analyst Associate Professor Dr Nuradli Rizwan Shah Mohd Dali said the Luxury Goods Tax will only lead to more income for the government if its target group spends more on luxury goods.
"The impact of introducing the tax must be studied. It will be good income for the government if those targeted by the tax spend more on luxury goods."
Nuradli said although the idea behind the taxation may be to bridge the income gap between the T20 and M40, more needs to be done by the government to reduce the financial burdens of the M40.
"The (Luxury Good Tax) might help in overall efforts in closing the gap between the M40 and T20, but the difference of incomes between these two groups will still be large.
"The government should think of another way to reduce the burden of the M40 by reducing the income tax for them," he said.
Prime Minister and Finance Minister Datuk Seri Anwar Ibrahim announced in the 2023 Budget that the government will introduce a Luxury Goods Tax from this year with a certain value limit according to the type of such products.
The move was to take a more progressive approach as a new step to broaden the tax base to those who have the means.