Malaysia new tax on Low Value Goods (LVG)

Introduction:

As the LVG (Low Value Goods) tax enters its fourth month of implementation, attention turns to its impact on Malaysia's retail ecosystem. With the aim of leveling the playing field between online and traditional retail businesses, questions arise regarding the effectiveness of this taxation strategy.

In a bid to rectify tax treatment disparities between retail and online businesses, Malaysia's Ministry of Finance (MOF) announced the enforcement of a 10% sales tax on imported low-value goods sold online, priced at RM500 or less each. The tax aims to establish fairness among businesses, particularly benefiting micro, small, and medium enterprises (MSMEs).

Leveling the Playing Field:

The ministry highlighted a prevailing loophole, where online businesses enjoyed an advantage over traditional retail counterparts due to exempted taxes on low-value imports. This practice, common globally, posed challenges to local retailers and created an uneven playing field.

Neighboring countries like Singapore and Indonesia have already taken steps to close similar loopholes, implementing taxes on low-value goods in recent years. In Malaysia, the enforcement was deferred to engage with industry players and stakeholders, ensuring smooth implementation aligned with addressing taxation disparities.

The legislation, announced in Budget 2022 and passed in Parliament in August 2022, applies a 10% sales tax to goods valued at RM500 or less, excluding specific items like cigarettes and tobacco products, already subject to import duty, excise duty, and sales tax.

The Unanswered Question:

As the LVG tax enters its fourth month of implementation, the question remains: how much revenue has been generated, and how many operators or registered sellers have complied with the new regulations? Moreover, has the promised "level playing field" truly made local businesses more competitive in the market?

"Finding the right root cause and creating a solution for that is more feasible than simply introducing a new tax regime that may not significantly impact the country. The main problem lies in the misuse of the system for declaring low-value goods items (ePAM), where fraud manifests are created by registered sellers or operators overseas, resulting in incorrect declarations upon entry into Malaysia. Utilizing new technologies could streamline processes and improve efficiency, reducing the need for manual intervention. Additionally, it's crucial to consider whether the tax collected outweighs the cost of running a new tax regime and to allocate resources for effective auditing and risk analysis to combat potential fraud."

What's Next:

Looking ahead, stakeholders must continue to collaborate closely to assess the LVG tax's impact comprehensively. Ongoing dialogue between the government, industry players, and stakeholders will be crucial in identifying any challenges and refining strategies to optimize the tax's effectiveness.