Starting from 1 January 2024, a 10% sales tax will be levied on imported low-value goods, priced at RM500 or less that are bought online.
This Low-Value Goods (LVG) tax was initially slated to start in April 2023, but was postponed till now to allow the government to engage industry players.
Why Was The Low-Value Good Tax Introduced And What Is It?
With online retail and marketplace booming, more and more Malaysians have naturally purchased products online. The LVG tax is meant to level the playing field by imposing similar tax treatments on both retail and online businesses in Malaysia.
In the past, only a general sales tax ranging from 5 to 10% (or a specific rate for petroleum products) was levied on manufacturers, importers or retailers prior to the sales of goods with an annual turnover of RM500,000.
Moreover, low-value goods under the de minimis value (of RM500 or less, including postage with Cost, Insurance and Freight (CIF) value) were typically exempted from sales taxes. This is a common practice around the world, to relieve the administrative burden on customs and speed up the import process.
Goods such as Cigarettes, Tobacco Products, Intoxicating Liquors and Smoking Pipes are exempted from this LVG tax, as they already incur existing duties and taxes regardless of their value.
Online local and foreign sellers with an annual total sales value of imported low-value goods of more than RM500,000 are required to register under the Sales Tax Act (Amendments) 2022 and impose the LVG sales tax.
How Is The Low-Value Goods Tax Charged?
The LVG tax of 10% is charged purely on the sale value, as seen in a guide by the Royal Malaysian Customs Department dated November 2023. For example, if you purchase an item online that will be shipped in via air, sea or land, that is priced at RM500 or less, you will be charged the LVG tax equivalent to 10% of the purchase price.
The LVG tax is charged based on each item’s price. For example, if you buy a shirt worth RM200 and book priced at RM350 from the same online store, you will incur the LVG sales tax on both items. So, you will have to pay an LVG tax of RM20 and RM35 respectively.
Sometimes, you may receive a discount on the products when shopping online. In this circumstance, the low-value good tax is charged on the final price after the discount. For instance, if you get a 10% discount on a shirt originally priced at RM300. You only pay an LVG tax on the final price of RM270, or RM27.
It’s quite common to buy things online with vouchers as well. In this case, the LVG tax is charged on the actual price of the item without taking into account the voucher. If you purchase an item sold at RM300 with a RM20 voucher, you will be charged an LVG tax on the full price of RM300 rather than the purchase price of RM280.
How Will The Low-Value Goods Tax Impact Malaysian Consumers?
Previously, Malaysian consumers did not incur any sales tax on low-value goods from abroad that were bought online. Now, you will incur a 10% sales tax, which is quite a high jump.
With no sales tax and a potentially lower overhead cost, online retail businesses have been able to sell their products at a more attractive price. Naturally, more Malaysians have opted to buy online.
With the implementation of LVG taxes, Malaysian consumers will think twice now, as they need to pay more when they shop online now. This will also mean local sellers and physical shops offer competitively priced products – which may spur more to shop locally.
Read Also: 3 Popular Lifestyle Brands That Are Cheaper In Singapore Compared To Malaysia
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