The Malaysian government has announced a major revision to its long-standing duty-free vehicle policy in Langkawi and Labuan, introducing a RM300,000 value cap on vehicles eligible for tax exemption. The change takes effect 1 January 2026, as part of the national Budget 2026 tabled by Prime Minister and Finance Minister Datuk Seri Anwar Ibrahim.
The decision aims to curb misuse of the duty-free policy, which has been exploited in recent years by individuals importing or registering high-end luxury cars in the islands to avoid paying excise and import duties.
A Move to Curb Tax Abuse
Under the current duty-free island policy, vehicles registered in Langkawi and Labuan are exempt from import duty, excise duty, and sales tax — provided they remain within the islands and comply with specific ownership and usage rules.
Originally designed to support local residents, businesses, and tourism, the policy gradually evolved into a loophole that allowed the ultra-rich to register multi-million-ringgit vehicles such as Ferraris, Lamborghinis, and McLarens at a fraction of mainland prices.
Recent investigations by the Royal Malaysian Customs Department (JKDM) revealed falsified documents and undervalued declarations used to secure these exemptions, leading to significant revenue losses.
The New RM300,000 Limit
Effective next year, tax exemptions will apply only to vehicles valued at RM300,000 or below, effectively excluding most luxury and exotic cars from the scheme.
“The government will ensure that tax incentives in duty-free islands continue to benefit residents and businesses that contribute to the local economy — not serve as shelters for luxury imports,” said Anwar during his Budget 2026 speech in Parliament.
Further clarification is expected from the Customs Department on how “vehicle value” will be defined — whether based on factory price, landed cost, or assessed market value before tax.
Existing vehicles that have already enjoyed full exemptions may be subject to transitional conditions or re-evaluation, though no official guidance has been released.
Impact on the Automotive Market
While the revision is expected to affect high-end marques whose models typically exceed RM300,000, dealers based in Langkawi and Labuan will likely need to recalibrate their product mix and pricing strategies, shifting focus to mid-range and entry-level models that remain within the exemption bracket.
For example, compact executive sedans such as the BMW 3 Series, Mercedes-Benz A-Class, or certain electric vehicles (EVs) could still qualify, depending on their final valuation.
Meanwhile, the existing rule limiting duty-free vehicles to no more than 90 days outside the islands per year will remain in place, with enhanced digital monitoring to prevent abuse.
Authorities also plan to conduct more frequent inspections and data audits to ensure vehicles registered under the duty-free scheme comply with the new value threshold.
With the new cap taking effect in early 2026, Langkawi and Labuan’s automotive landscape is set for significant change. The islands will likely see fewer supercars on their roads, replaced instead by more attainable models that fit within the RM300,000 threshold.
While it marks the end of an era for Malaysia’s duty-free luxury car scene, the reform underscores a broader message from Budget 2026 — that fiscal fairness now takes precedence over privilege.
