The move is framed by the government as a matter of fairness and enforcement, amid growing concerns that tax incentives meant to boost local economies have instead enabled loopholes, abuse and weak compliance among wealthy vehicle owners.

For years, Langkawi’s duty-free status allowed supercars that would cost up to 5 million ringgit ($1.2 million) elsewhere in Malaysia to be registered on the island for roughly half the price, making it the preferred hub for luxury car buyers nationwide.

Industry figures indicate that around 90% of Ferraris in Malaysia were registered in Langkawi, not for island use but to take advantage of lower taxes. 

After uncovering unpaid tax

Officials have also been under pressure to act after stepped-up enforcement revealed widespread non-compliance , including hundreds of luxury vehicles with unpaid road tax, forged plates or years of arrears despite their high market value.

Since July 2025, road transport authorities have seized more than 900 luxury vehicles nationwide, including Ferraris, Aston Martins and Rolls-Royces, some owing tens of thousands of ringgit in unpaid tax. 

By removing exemptions, Malaysia appears to be signalling that ownership of high-value assets must come with full fiscal responsibility, particularly at a time when the government is seeking to broaden its tax base.

The policy also aligns with Prime Minister Anwar Ibrahim’s broader reform agenda, which emphasises closing leakages, curbing elite privileges and restoring confidence in the tax system.

Backlash on economy

However, industry veterans warn the move could backfire economically, arguing that Langkawi’s tax-free status generated sustained revenue through corporate tax, customs charges, tourism spending and high-end services tied to luxury vehicles.

They say the island evolved into a niche automotive and lifestyle hub, hosting international car launches and supporting specialised workshops, logistics firms, hotels and secure storage facilities.

Dealers report immediate fallout, with cancellations already being felt amid uncertainty over implementation, while local business groups fear job losses and a decline in premium tourism.