Labuan BIMP-EAGA (Brunei-Indonesia-Malaysia-Philippines East Asean Growth Area) Business Council (Labuan BEBC) chairman Azhar Othman said the duty-free retail sector was one of the main income generators and key attractions in Labuan.
“Labuan BEBC objects to this move by the government. We urge the government not to implement it as it would do much more harm than good,” Azhar told FMT.
He added that such a measure was not new “as the customs department attempted this a few years ago but failed.”
The sector, Azhar said, has provided hundreds of jobs to locals, and was critically needed considering Labuan has yet to recover from the downturn in oil and gas activities besides being impacted by the Covid-19 pandemic.
“Any further hindrance will destroy their businesses and possibly their livelihood.”
Finance Minister Tengku Zafrul Aziz had said, when tabling the budget last Friday, that the government will make cigarettes and tobacco products as taxable goods on all duty-free islands such as Labuan, Langkawi, Tioman, and Pangkor, and any other zones that have been permitted retail sale of duty-free cigarettes.
Labuan MP Rozman Isli also opposed the move by the government, saying this was not something the business community needed in these challenging times, that has been made worse by the pandemic.
“They are drowning and struggling to fight an uphill battle even before Covid-19 after the drop in the oil and gas sector here.
“And now, being dealt a huge blow like this, they might just be ‘knocked out’. The Labuan economy depends a lot on visitors from Sabah and others who are attracted to come here for duty-free items, including tobacco products,” the Warisan lawmaker said.
“What else is there for Labuan? Many people will become unemployed.”
Rozman said he will raise the issue in Parliament and seek some answers if the government persists on removing the tax break for tobacco products sold in Labuan.
“I want to know if this tax imposition is really carried out, what is the next move to remedy this and to ensure the Labuan economy continues to grow,” he said.
Rozman described the move as unfair to Labuan, which he said received less attention compared with other Federal Territories in the peninsula.
Azhar agreed with Rozman, saying Labuan now has the highest unemployment rate in recent years, mainly caused by the drop in oil prices.
“Tourism had never taken off in a big way and will never have the same positive impact that oil and gas, and duty-free shopping have had for the local economy.
“Many outlets and businesses have closed down. Any policies or regulations that are not supporting the growth of the industries in Labuan should be objected to,” he said.
He added unlike Penang, Labuan still needed the duty-free retail sector to provide income and jobs to locals in the absence of other thriving industries.
Azhar said the tax on duty-free tobacco products will inevitably cause a negative chain reaction on other industries such as tourism and the hospitality sector, which he said will “experience slow deaths.”
“The number of visitors would decrease and this would affect not only the shops but other sectors that depend on tourists and visitors.”