Luxury goods are products with a demand that is directly related to consumer income which means if consumer income increases, they will purchase more of these goods and if consumer income decreases, they will stop purchase for these goods.
Demand for luxury goods in Malaysia happen in different location and income group. Most of the products are being found in premium shopping in Kuala Lumpur, Penang and Johor. These locations is where the highest demand for luxury goods which most premium outlets are also established within these locations.
Luxury goods are use by the persons with high income. This is because the price of luxury goods are so high for persons with an average income. The persons with an average income cannot afford to buy those luxury goods.
Luxury brand pricing strategy is finding the right balance between exclusivity and availability and also on being able to provide consistency across various countries and product ranges. The price of any product from a luxury brand must reflect the key messages of any luxury brand is quality, heritage and exclusivity. This is different from premium brand pricing where the product is freely available to those willing to pay the price.
Luxury goods are said to have high income elasticity of demand because as said before that if people income increases, they will buy more luxury goods and if the income decrease, demand for luxury goods will drop.
Income elasticity of demand is not constant with respect to income, and may change sign at different levels of income. This means a luxury good might be a normal good or even an inferior good at different levels of income. For example, a wealthy person stops buying luxury cars for his or her automobile collection because the person wants to start collecting airplanes. With this income level, the luxury car would become an inferior good.
Some luxury products have been claimed to be Veblen goods that are with a positive price elasticity of demand. A Veblen good is a luxury item which price does not follow the usual laws of supply and demand. Usually, the higher the price of a particular good the less people will want it but for luxury goods such as very expensive watches or cars, the items will become more desirable as it grows more expensive and less desirable should it drop in price. Veblen goods are not similar with Giffen goods which is also rise in demand as the price increase. Giffen goods tend to be staple food items, the demand increase is because of poverty.
Although the term of luxury good is because of the goods’ quality, they are generally considered to be goods at the highest of the market in terms of quality and price. Classic luxury goods include high fashion clothing, accessories and luggage. Many markets have a luxury segment including such as automobile, yacht, watches and jewelry.
Luxuries also can be services. The hiring of full-time or live-in domestic servants is a luxury reflecting disparities of income. Some financial services, building a house can be considered luxury services by default because persons with lower income will do not use them.
SST IMPACT ON LUXURY PRODUCT DEMAND
One example of luxury goods is luxury cars like PEUGEOT. It is an expensive and not easy thing for everyone to buy it. The privilege found on this car makes it a luxury item. Cars are among the taxable items. It is taxed on the implementation of GST and is also taxed during the implementation of SST. We will see total sales for PEUGEOT during September 2018 (SST) and during March 2018 (GST) and the difference in car prices when GST and SST:
PEUGEOT PRICE DURING GST AND SST
Based on PEUGEOT comparison price and the total sales during GST and SST it show the car sales statistics when high prices were at GST, sales volume was higher than when at SST prices. It shows the increasing prices of luxury goods are getting higher demand. When the price is gst price, the sale is at 236 units. While at the sst price, the sale is at 197 units. So, it shows at a high price, the demand for this luxury item is high because it will show the buyer’s luxury. In addition, the implementation of the SST caused the price to fall and it proved that luxury goods was an elastic demand due to a slight price change causing a huge change in demand.
IMPACT ON DEMAND CURVE
0 Q1 Q0 QUANTITY
The diagram shows the demand for Peugeot cars when sst and gst prices. The original balance point lies at point E0 at the price level P0 and Q0 quantity. At this point the price of the goods is at the time of Gst. The change in taxation method that switches from Gst to Sst causes the equilibrium point to move left from point E0 to point E1. New equilibrium point is reached at point E1 at P1 price level and Q1 quantity. Then the implementation of SST causes the price drop and the quantity demanded decreased. It shows a positive relationship between the price of luxury goods and quantities demanded. When Peugeot’s car prices drop from P0 to P1, the quantity demanded also dropped from Q0 to Q1.
The conclusions that can be summarized in this paper are that the tax system is very important for a country. Although there are various types of taxes practiced in other countries, tax is a certainty because through the tax system, a country can carry out development and boost their economy. We can see developed countries such as Singapore and Hong Kong using effective taxes in accordance with their country and the result they can develop their country well. Various types of taxation that can be applied in generating state revenues. Without us being aware, the tax paid by us is actually for our benefit in the future. Without taxation, there will be no development and assistance to certain groups. In addition tax is also a mechanism in ensuring no distance between the rich and the poor. Malaysia as a developing country needs the awareness of all parties why tax is implemented in the country. Then the government needs to implement transparent taxation system either GST or SST. This is because GST has good and harm as well as SST.
Another possible conclusion is that the implementation of the SST effective from 1 September 2018 does not promise a reduction in the overall price. On the other hand there are also some prices of goods that go up. In the demand of luxury goods, the price drop will cause the quantity demanded in the market diminishes as it reduces the user’s image. And if the prices of luxury goods rise during the implementation of SSTs, the demand for luxury goods will increase by as much as the price increases slightly.
Most luxury goods like cars, they are goods imported from outside the country. Then the government needs to control that demand for luxury goods from abroad does not affect the luxury goods industry in the country.