MALAYSIA. The ZON Duty Free has slammed a proposed excise tax on all cigarettes and tobacco products within duty free areas, saying that it will have a deeply negative effect on the Malaysian economy and the travel retail sector.

Malaysian Finance Minister Tengku Dato’ Sri Zafrul Tengku Abdul Aziz announced in his recent Budget 2021 speech that taxes would be imposed on tobacco products sold in all duty free islands and any free zones that have been allowed to retail duty free cigarettes.

In a statement today, quoted by local media The Edge Markets, ZON director Ong Bok Siong said that the proposal will add further pain to duty free retailers already reeling from a disastrous COVID-19-related drop in travel.

“In fact, duty free sales are expected to decrease by US$29.4 billion in the Asia Pacific region this year, according to market research firm Globaldata,” Ong said.

“Clearly, it is the wrong time to impose excise duty on cigarettes and tobacco products in duty free areas. These products are very popular with international and domestic travellers and form a significant part of a duty free retailer’s revenue.”

The offending text in the Budget: The proposal removes a key attraction of the duty free zones and will hit tourism in general as well as travel retailers

Ong warned that some duty free retailers may be forced to reduce their workforces or even close.

“Surely this outcome is misaligned with the federal government’s aim to reinvigorate the economy that has been hurt by the crisis.

“The focus now should be to assist businesses to get back on their feet so they can in turn contribute positively to rebuilding our economy,” Ong said.

The ZON Duty Free is part of publicly listed Duty Free International (in turn 75% held by Atlan Holdings). It operates stores at Bukit Kayu Hitam, Padang Besar, Pengkalan Hulu, Langkawi, Rantau Panjang, Penang International Airport, Tioman Airport, KLIA, Melaka Airport and Johor Bahru.

How local media The Edge Markets covered the story. Click on image to read.

MOODIE DAVITT COMMENT: This is a highly retrograde and deeply damaging move by the Malaysian authorities and Ong Bok Siong’s remarks are justifiably and expertly made, writes Martin Moodie.

Ong Bok Siong: Well-made comments

In his same 2021 Budget, the Finance Minister emphasises the crucial importance of the tourism sector to the Malaysian economy.

“The Government is aware that the tourism sector is one of the most affected sectors as a result of COVID-19,” he says in his introduction of a seven-point support and stimulus programme.

To help reduce the cash flow burden of tourism-related companies that are still affected by the COVID-19 pandemic, an exemption from the HRDF (Human Resources Development Fund) levies is being offered for six months, effective 1 January 2021.

All that is commendable. But to give something with one hand and take away potentially much more with the other is a short-sighted move that ranks alongside UK Prime Minister Boris Johnson’s recent move to abolish tax free sales and the VAT-refund system for tourists. The travel retail sector in Malaysia, as in so many countries, is a vital provider of employment and economic vibrancy. Now is the worst possible time for such a move.

How we covered the disastrous British government proposal to abolish tax free sales and VAT refunds in The Moodie Davitt eZine. Click image to read.