New low-value goods tax a boon for local sellers, says tax expert

 

The enforcement of the low-value goods tax is intended to address the tax treatment disparity between goods sold by retail businesses and online businesses.

PETALING JAYA: The 10% sales tax to be imposed on online purchases for imported goods costing RM500 and under could boost sales for local players, says a tax expert.

Senthuran Elalingam, a partner at Deloitte Tax Services Sdn Bhd, said the new rules would incentivise buying from local vendors as their sales would be subject to an effective lower tax rate.

“On Jan 1, if you walk into a store in Malaysia and buy a particular product below RM500, that store won’t charge you sales tax because domestic sales tax is only imposed on imported and manufactured goods.

“If you buy that same product online and it is shipped from a place outside of Malaysia to you, then you will pay 10% tax on the sale price,” he told FMT.

“Now of course, that store, when they imported those goods into Malaysia, may have paid sales tax on the wholesale import value and that would be embedded in the price. So there still can be some tax collected,” he added.

Senthuran said another point of difference was the rate of taxes imposed – if it is an import, the rate can be exempt, 5% or 10% depending on the type of goods.

“However, for low-value goods, it is 10% regardless. So in effect, it can be a much higher cost for online sales from outside of Malaysia than local sales.”

Yesterday, the finance ministry said the low-value goods tax was intended to level the playing field for businesses in Malaysia, especially micro-, small- and medium-sized enterprises.

The ministry said that in general, a sales tax is applied to goods sold locally and paid for by the relevant importer, wholesaler or retailer prior to sale to the consumer in Malaysia.

However, it said, a loophole in the sales tax meant that imports below a minimal value (RM500) are not subject to sales tax and import duty to facilitate the ease of customs clearance for postal and courier shipments.

Thus, enforcement of the low-value goods tax, which was postponed from April 1 this year to Jan 1, 2024, is intended to address the tax treatment disparity between goods sold by retail businesses and online businesses.

The ministry added that online local and foreign sellers with a total sales value of low-value goods brought into Malaysia exceeding RM500,000 in 12 months may apply to be registered under the Sales Tax Act (Amendments) 2022.

Meanwhile, Small and Medium Enterprises Association chairman William Ng said the low-value goods tax would allow local sellers, including SMEs, to compete on the basis of superior service, proximity, and better local consumer protection.

He said that for many years, local retailers and online sellers had fought an unfair competition against foreign sellers which sold products that might not have undergone the same stringent quality and safety tests to which Malaysian manufacturers and importers are subject.

Ng urged online marketplaces to immediately facilitate the implementation of the new tax for sellers who have met the threshold, and to refrain from passing additional costs to local sellers. - FMT