LVG tax: A thorn in Madani's administration

JUST six days into the new year, Hong Kong-based international news portal South China Morning Post has published a headline: Malaysians fume over new cheap goods tax amid already higher cost burden: can't even buy underwear.

Across social media, the general public protested the Low-Value Goods (LVG) tax that came into effect on Jan 1 - 10 per cent levied on imported goods worth RM500 and below in the e-commerce market.

The mass media also did extensive research, where the average item has increased in price between 10 to 20 per cent compared to before.

In fact, some products went up higher according to a user who reported that the price of the product he wanted to buy increased from RM360 to RM467.

As a context, the LVG tax law was announced in the 2022 Budget, Parliament then approved the law during Datuk Seri Ismail Sabri's administration.

The 2024 budget estimates government revenue of RM307 billion, of which 79 per cent comes from tax collection.

Nevertheless, the LVG tax has had a sudden impact and therefore raises various polemics and questions.

First, the government is expected to collect only RM200 million from the LVG tax.

Compared to the estimated total collection of RM307 billion, the amount is small and not worth the hassle that arises for sellers and the increase in the price of goods.

Second, the seller needs to register, add the price, collect and remit the proceeds to customs.

This adds red tape and increases the cost of online sellers who on average do business with small capital turnover.

Third, there are problems from a legal point of view.

Regulating sellers on Shopee and Lazada is not a problem, but how does the government want to apply these rules to live commerce sellers on TikTok, Instagram and Facebook applications?

Fourth, the timing of the implementation of the LVG tax is bad when the cost of living is rising with high prices of goods, especially food, inflation, post-pandemic economic slowdown and political instability.

Fifth, and this is the most important. Online shopping is not only for the B40 group to buy cheap clothes, food and baby equipment, it is also a source of joy for people at every economic level from B40, M40 middle and low, including T20.

Do not take people's small joys.

The Finance Minister's previous reasoning that the LVG tax will create equal competition and encourage people to buy local goods, is not sound and should be archived.

Tengku Datuk Seri Zafrul Abdul Aziz's argument is weak because 90 per cent of goods sold online are not made in the country.

Malaysia is not a manufacturing hub in Southeast Asia like Vietnam, nor is Malaysia a manufacturing hub in Asia Pacific like China.

From plate racks, children's games to phone accessories, everything is not made locally.

So for a short-term solution, to create equality of competition between foreign and local goods sellers, the tax law needs to be modified to exempt the 10 per cent sales tax for local manufacturers on goods priced below RM500.

A long-term solution? Putrajaya, especially the leader of the #BantahGST demonstration and Amanah President needs to accept the fact that this kind of ad hoc tax is not transparent, regressive, burdens the people, increases inflation and makes it difficult for sellers.

Because the best system to collect tax on online businesses is through consumption tax GST or VAT as practiced by 174 countries, out of 193 countries registered under the United Nations.

Just admit that the behaviour of raging, rolling, sleeping in the middle of the road from 2014 to 2018 to protest GST is nonsense and only incites the people.

Putrajaya, the time has come to press the control, alternate, and delete button against ad hoc taxation.

Keep it up and the people will press the same button for you in four years.

* Elviza once wrote for two Prime Ministers, she now lives in Shah Alam with her son Luqman.

The views expressed in this article are the author's own and do not necessarily reflect those of Sinar Daily.