New sales tax aims to level the playing field for local online retailers - Expert

25 Dec 2023 11:00am
Pix for illustration purpose only. - Photo by 123rf
Pix for illustration purpose only. - Photo by 123rf

KUALA LUMPUR - The implementation of a 10 per cent sales tax on low-value goods (LVG) costing RM500 and below sold online would allow local businesses to market their products of the same quality at an even selling price, thus boosting consumer demands.

Putra Business School economic analyst Assoc Prof Dr Ahmed Razman Abdul Latiff said the tax, which would start on Jan 1 next year, would allow for the stabilisation of price between imported and local goods as imported LVG are currently not subjected to any tax whilst a six per cent sale and service tax (SST) is imposed on locally produced items, resulting to it being sidelined by consumers.

"If there are identical goods in terms of function and utility produced by local and foreign manufacturers, the production costs will undoubtedly be more or less the same, resulting in the same selling price but the six per cent SST will make local goods more expensive,” he told Bernama.

He said the introduction of the 10 per cent LVG tax would make local goods appear more affordable and attract demand.

"This tax is only imposed on goods valued at less than RM500, so even though the tax rate is 10 per cent, it is not burdensome as it applies only to low-value items,” he said.

On Dec 18, the Ministry of Finance announced that a 10 per cent tax would be imposed on imported LVG sold online to level the playing field for businesses in Malaysia, especially micro, small and medium-sized enterprises (MSMEs).

According to MoF, while there is a common global practice not to impose sales tax and import duty on imports below a "de minimis” (minimal) value, which was set at RM500 for Malaysia, to facilitate ease of customs clearance for postal and courier shipments, the proliferation of online retail had created an unfair advantage for online businesses selling directly to Malaysian consumers compared to physical retail businesses in Malaysia.

Razman said the tax would not only help local businesses to step up their sales which in turn could lead to more job opportunities creation and a better sustained domestic economy but also increase the government income as well as strengthen the ringgit via the reduction of overseas cash flow.

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Meanwhile EMIR Research head of social, law and human rights Jason Loh Seong Wei said the increase in revenue or earnings of local SMEs could potentially push their taxable income to a higher bracket, which equates to more tax intake for the government, depending on the tax’s elasticity.

"The imposition of the LVG tax at 10 per cent represents an additional RM1 to the purchase price of the imported good of RM10 which represents up to 4.7 per cent in terms of real purchase value when taking into account the conversion costs,” he said.

Jason said eroding purchasing power and expenditure capacity of consumers would also encourage the switch to domestically available items.

He said the implementation of LVG tax is a strategic move to widen the tax base without impacting the lower income groups as it involved the direct purchase of imported items online from foreign sellers.

"Any hike in the overall prices of the imported items is self-limited and wouldn’t spill over into the rest of the economy, have an inflationary knock-on impact.

However, Universiti Utara Malaysia senior finance lecturer Dr Adilah Azhari said the tax would unavoidably affect some online sellers like those on Shopee who primarily sell imported goods.

"Traders on online platforms can offer lower prices because they have fewer overhead costs and can reduce expenses but if an additional 10 per cent tax is imposed, it will create a burden that will ultimately be passed on to end-users.

"When the government wants to increase high-value good duties (discussed between) five to 10 per cent, but why for LVG, the government decided to impose 10 per cent straight away? In my opinion, this is not the right time to introduce this tax because the cost of living is increasing,” she said. - BERNAMA