Heads up! There’ll be a 10% Sales Tax on Low Value Goods below RM500 purchased online and imported into Malaysia

Here’s an interesting local development that I thought to highlight, since many of us are avid online shoppers, who shop online both locally and from overseas.

I have been shopping online from numerous overseas websites for a long time, as I do what most consumers do – look for the best deals. And we do get a lot of good deals online from international ecommerce stores. I’d done so much of it, I’d shared a comprehensive article about my experience shopping online from international websites, and how we in Malaysia are affected by import tax.

As of now, our tax threshold for personal purchases made online (or as they say, ‘imported’) is RM500. Barring certain categories of items, purchases of RM500 and below aren’t taxable. So, shopping smart is key.

But all that’s changing come 1 January 2023 (2024) 🙁

Sales Tax on Low Value Goods (LVG) in Malaysia

I remember it was mooted in the Budget 2023 speech, that a 10% ‘import tax’ would be imposed on Low Value Goods (LVG) purchased online and ‘imported’ into Malaysia. I did not think much of it at the time, because there’s so much that is proposed often doesn’t follow through in the law. LVG appears to be defined as goods that are valued at RM500 and below in one receipt.

But now that the Bill has been tabled in Parliament, it looks like it’s going to be a reality.

4 Aug 2022: Update – The Bill has been passed in Parliament and will come into force on 1 Jan 2023. The details are yet to be announced.

source

9 Jan 2023 update: The date of coming into force is now 1 April 2023. There is a very confusing explanation provided in the Malay Mail here. The tax was eventually postponed after the PH government came back into power.

16 Dec 2023 update: It looks like the tax is coming back into play come 1 Jan 2024. News here. Some guidelines have been issued. See KPMG guidelines.

LVG Tax rate of 10%

Based on what I’m reading, LVG brought in by air will be taxed at a flat value of 10%, and this tax must be paid by the seller, both domestic and foreign, who must be registered with the authorities.

The objective of this LVG tax is to bring foreign sellers and local sellers to a level playing field and to encourage domestic consumption. Apparently, LVG tax isn’t a foreign concept, as it’s implemented in countries like Australia and New Zealand, with Singapore expected to impose it via GST in 2023.

That said however, I’m not certain how it works in Australia and New Zealand, and whether it actually impacts directly on the consumer i.e. the consumer pays the 10% flat tax to purchase goods online, or whether it’s something processed at the seller’s end, with no hidden charges to the consumer.

Similarly, I’m not certain how it’ll operate here in Malaysia too.

Expect to pay more for overseas online purchases

While it is a given result that the consumer will have to bear the price increase (which is likely 10% or more), it isn’t clear what happens if the foreign seller does not register for the LVG scheme with the authorities. Would we have to pay the 10% tax to the air courier companies (e.g. DHL, Fedex, EMS etc), and additional administrative costs, to release our purchases? Or would foreign sellers just stop shipping to us in Malaysia, because it’s just too much trouble to register with the authorities?

This will also affect the ecommerce platforms like Shopee and Lazada and Taobao, which are awash with low value goods especially from China. At present, there are many dropshippers who operate on these platforms, and I’d expect that this new law and regulation will affect them. However, it is unclear for now how the process will be for us as the end-consumer.

More importantly for me is whether my usual overseas shopping sites will continue shipping to us here in Malaysia, and how hard it will be for me to get my purchases cleared from customs. Considering these are low value purchases of below RM500, if they make it difficult for us to clear it from the customs, it does feel like we’re just being discouraged from buying online from overseas. It would be unfortunate really, as for many of us who are seasoned online shoppers, know that there are some products or goods that we can only find overseas 🙁

Are you affected by this new ruling?

I am because I do have many overseas ecommerce stores that I shop at. While I’ve slowed down on shopping for beauty products from overseas, I do still make regular purchases from iHerb for certain fun groceries and supplements for my pup. I can’t get these supplements elsewhere locally, so it is rather disturbing for me.

I also buy from Book Depository and Net-a-Porter (if I’m splurging).

I have not bought from SpaceNK for a while, as they’ve stopped shipping many products to Malaysia. I don’t know if it’s in anticipation of this new ruling, or if there’s some cross-border limitations on the brands they can ship, but I have stopped buying from them for a while now. As of now, Cult Beauty still ships to Malaysia, although they don’t deduct VAT anymore so there is little to no savings for us, unless you’re just looking for brands that aren’t available locally.

On an overall basis, I do hope that it will be a seamless affair for the consumer, without us having to clog up the customs department, attempting to claim our goods and pay the requisite taxes. One can hope 😛

What about goods that are more than RM500?

I have experience with this, as I’ve shared before in this post. Generally, if I’m faced with having to pay taxes, I usually let the air courier companies handle the clearance process, for which they usually charge an administrative fee of about RM50 or thereabouts (the value could increase depending on the value you are clearing). So, when I receive my purchase, there is an additional 10% value + administrative fee tacked on top. In some instances, it’s still worth it for me. For luxury online retailers like Net-a-Porter, you pay your taxes up front to them, so it arrives duty paid, which prevents the element of surprise.

Basically with this new ruling, ALL online purchases from overseas that come in by air will be subject to a 10% tax. It won’t matter what value your goods are anymore. However, it appears that goods that come in by sea or by land may be excluded. So, if your online shopper offers sea shipping (and we might see this being offered more and more) and you’re prepared to wait for your purchase, then that be something to consider.

What will overseas retailers do?

But for low value goods, where’s the value anymore?

If I buy something online from China for say, RM200, and I have to pay RM20 (10% tax) and RM50 on top of that, which brings the total to RM270, I might not want to anymore, and just buy it locally, even if it costs RM300. That is what they hope we will do, so we spur domestic consumption.

For me, I just hope that this does not result in overseas online retailers stopping their deliveries to us here in Malaysia. I expect that larger retailers like iHerb or Book Depository or even Amazon, will be able to sort out the administrative requirements at their end, to get around all these red tape, so we can still receive our orders (which might cost a little more eventually).

But I expect that smaller retailers, especially on Shopee or Lazada platforms, may not bother. The easy way would be to close shop and pivot to doing something else. Or in the case of an online retailer, to just simply stop shipping to Malaysia, since our market isn’t that large by comparison with markets like Australia or New Zealand.

Much will be uncertain in January 2023, so here’s my non-expert advise : Do ALL your online shopping for low value goods NOW until December 2022 😛 Then, sit it out until everyone gets their house in order by mid-2023, so we can figure out what it means for us, the consumer. That’ll be what I’ll do anyway to make sure my pup has a good stock of his vitamins! 😛

If you’d like to read more, you can check out some of these news sites that have reported on this new development: Read here, here, here, and on the KPMG website here.

How do you feel about this? Would you be affected?

I’ve scaled back on online shopping for a while, so I’m primarily only affected by iHerb. But I have faith that a large company like theirs will be able to resolve this issue quite quickly and painlessly. I just hope they don’t take the easy way out and just stop shipping here! 😛

Paris B

Nothing in this post is designed to offer financial or tax advise. Please consult a tax expert if you have any inquiries