The Small and Medium Enterprises Association (SAMENTA) has said that the implementation of the 10% tax on imported low-value goods (LVG) sold online is well-received, and that it will help to level competition and boost local businesses. This comes following a recent announcement by the Royal Malaysian Customs Department (RMCD), which said that the LVG tax will be imposed starting from 1 January 2024.

“While local retailers have to pay tax at various points of the supply chain, including when bringing in components or raw materials as well as finished goods into Malaysia, we are being undercut by foreign sellers and local dropshippers who have largely escaped from paying tax to Malaysia on their products,” said SAMENTA’s president, Datuk William Ng, in a statement, adding that local sellers have been fighting an unfair competition against foreign sellers for many years.

To explain, local manufacturers are presently already subjected to a 5% or 10% sales tax, while those who are selling imported LVG – defined as goods with a total value of less than RM500 per consignment – are exempted from sales tax when they bring in the goods using courier services through selected international airports. This ultimately puts local manufacturers at a disadvantage, as they have to contend with higher costs.  

This is set to change on 1 January, as all LVG – whether brought into Malaysia by land, sea, or air – will be charged a 10% tax (excluding selected items, such as cigarettes, tobacco products, liquors, electronic cigarettes, and preparation of a kind used for smoking). The tax also applies to local businesses selling LVG on online platforms or marketplaces with annual revenues exceeding RM500,000.

Ng further urged online marketplaces to help facilitate the implementation of the tax for both local and foreign sellers who qualify. He also said that e-commerce platforms should find ways to prevent businesses from passing additional costs to local sellers he said.

“It is the social responsibility of these marketplaces to help support Malaysian sellers and made-in-Malaysia products, given the extensive regulatory facilitation, promotional support and financial aid given to them by various government agencies for many years,” Ng commented.

Similarly, the Ministry of Finance (MOF) also came forward to explain that the LVG tax is aimed at levelling the playing field for local businesses. In a statement, the ministry acknowledged that sales tax and import duty are typically not imposed on imports below a “de minimis” value (minimal value), mainly to enable easier customs clearance for such postal and courier shipments. This value is set at RM500 for Malaysia.

However, with the rise of online retail, this exemption turned into a tax loophole that created an unfair advantage for physical retail businesses in Malaysia, said MOF. As such, the LVG tax was introduced during the tabling of Budget 2022 to address the matter, although the actual implementation was delayed a number of times from its initial scheduled date of 1 January 2023. It was first postponed to 1 April 2023, and then postponed again indefinitely – until this latest update.

MOF also highlighted that Malaysia is not the only country to introduce the LVG tax. Singapore and Indonesia have both also implemented similar taxes on 1 January 2023 and 1 April 2023, respectively.

(Source: Malay Mail [1, 2])

• TAGS:
• Datuk William Ng
• Finance Ministry
• Low-Value Goods (LVG)
• LVG Tax
• Ministry of Finance
• Royal Malaysian Customs Department
• Small and Medium Enterprises Association (SAMENTA)