KUALA LUMPUR, Jan 9 — Starting from April, Putrajaya will be collecting a new sales tax, which will see Malaysian shoppers paying 10 per cent more every time they buy goods imported from overseas (that are priced less than RM500).
How does this new tax work? Does it only apply to Malaysian shoppers? What if you are a Malaysian seller of imported goods online that have a value of less than RM500?
Here’s everything you need to know, based partly on the Royal Malaysian Customs Department’s (RMCD) draft tax guide as of January 1:
What is this tax?
The Malaysian government will be imposing a sales tax of 10 per cent on “low-value goods” (LVG) (goods that are priced less than RM500) which are sold online and delivered from overseas to customers in Malaysia (including in duty-free islands Labuan, Langkawi, Tioman and Pangkor and special areas like free zones) by air, sea or land.
You have to pay this new tax from April 1, 2023 onwards.
How much more will it cost?
The new sales tax of 10 per cent is only for overseas low-valued goods (priced less than RM500) bought online from April 1, 2023 onwards.
This tax will not be imposed on the delivery charges or insurance costs for the bringing in of the item from overseas to Malaysia.
Here’s an example: Let’s say you are buying an item from overseas with the price of RM490 from an online shopping platform, and there is a delivery charge of RM10. The total will be RM500, if you bought it before April.
From April onwards, the new sales tax will mean you have to pay RM490, plus RM49 (10 per cent sales tax on the item), and the RM10 delivery fee. The total payable upon purchase will now be RM549.
The sales tax on the LVG will be charged at the time when the online shopping platform issues the order confirmation.
What if the goods only arrive after April 1, do you need to pay the tax?
As long as you bought the LVG online before April 1, 2023, you do not have to pay the 10 per cent LVG sales tax, even if the goods are delivered to you after April 1.
Example one: If the seller issues the invoice on March 31, 2023 (with payment received), and you receive the goods on April 1 or after April 1, no LVG sales tax is imposed.
Example two: The seller’s invoice date (payment received) is April 1, 2023, you have to pay the LVG sales tax.
Tax won’t apply to imported alcohol and cigarettes
The 10 per cent sales tax will apply to all LVG bought online.
The sales tax will not apply to these things purchased online at prices below RM500:
smoking pipes (including pipe bowls),
electronic cigarettes and similar personal electric vaporizing devices,
non-nicotine liquid or gel preparations used for smoking via e-cigarettes or vaping devices,
I’m selling, how will it affect me?
You need to register with Customs and help collect the new tax.
Here’s who needs to register with RMCD:
If you are a seller in Malaysia / seller outside of Malaysia AND sell LVG (goods priced below RM500) online and these goods are brought in from overseas into Malaysia, AND
Your total sale value of LVG brought into Malaysia in 12 months is more than RM500,000 (The 12 months can be the immediate past 12 months before registration or the current month and next 11 months)
Here’s RMCD’s example of who should register: An e-commerce platform selling consumer goods (on behalf of both local and overseas sellers) and with LVG sold to Malaysian customers being more than RM500,000 for the 12-month period.
The registration is open from January 1. The RMCD guide states that you can register through the MyLVG online system using the LVG-01 form.
The sales tax on LVG will be due and payable at the time when the registered seller sells the LVG.
The seller is required to declare such tax amounts (by stating them in ringgit Malaysia) to the RMCD every three months through the MyLVG system using the LVG-02 form, and to pay the tax amount collected from online shoppers to the RMCD by the last day of the next month after the three-month period (e.g. to pay by July 31 for the taxable period of April to June).
If the registered seller overpaid the LVG tax amount which was due or made an erroneous payment, the seller can apply for a refund via the LVG-03 form.
A registered seller can apply through the MyLVG system to cancel their registration if they no longer sell LVG or if the total sales value of LVG in the 12 months does not exceed RM500,000.
Note: The information in RMCD’s draft guide is applicable as of January 1, 2023, but is subject to change. The draft guide also states that it can be withdrawn by the publishing of any new guides.
The full RMCD draft guide dated January 1 can be viewed via this link.
When did this ‘new’ sales tax even pop up?
The idea for this new sales tax has been around since October 2021, when the Malaysian government in its Budget 2022 speech proposed to implement the tax from January 1, 2023.
Both the Dewan Rakyat and Dewan Negara voted in favour of law changes for this new tax respectively on August 4 and August 16, 2022.
It received royal assent and was gazetted as law (known as the Sales Tax (Amendment) Act) 2022) in October 2022.
On November 22, 2022, the RMCD said the implementation of the new tax would be postponed to April 1, 2023.
Why did the government impose this LVG sales tax?
According to the RMCD guide, the de minimis facility meant that LVG imported through airports were exempted from two kinds of tax — import duties and sales tax on import. (After April 1, the LVG sales tax will be imposed on LVG imported by air.)
The de minimis facility did not apply to LVG imported by road or by sea, which meant both those taxes were imposed. (After April 1, the sales tax on import will not be charged, if the registered seller already imposed the LVG sales tax when it was sold. So sales tax will not be charged twice.)
When tabling the proposed new tax on LVG on August 4, 2022 in the Dewan Rakyat, then deputy finance minister I Datuk Mohd Shahar Abdullah explained that the exemption of sales tax on LVG imported into Malaysia was unfair, as sales tax was imposed on locally-produced LVG sold by local sellers.
He said the new sales tax on imported LVG will help level the playing field between local and overseas sellers, and expressed the intention to encourage locals to buy local products.
Shahar pointed out that the Malaysian government was also suffering losses as some attempt to evade taxes by falsely declaring high value goods to be valued less than RM500, with 1,922 such transactions in 2020, 1,228 (in 2021) and 276 (up to June 2022).
Shahar said the RMCD’s simulation based on past declarations (via the e-PAM system by courier services on goods imported by air) showed that the Malaysian government would have received RM15 million in 2018, RM106 million (2019), RM205 million (2020), RM326 million (2021) if sales tax were not exempted from LVG in those years. (He separately told Dewan Negara that the total value of transactions on LVG from 2018 to 2021 was RM6.5 billion, which he said meant such a sum had flowed out of the country.)
He stated RM200 million as the estimated amount that could be received by the government once it introduces the LVG sales tax.
Among other things, Shahar had on August 16, 2022 in the Dewan Negara said no sales tax on LVG will be imposed on items sent through post such as gifts or items carried in passengers’ bags as these are not sold by online sellers, but noted that this would still be subject to the de minimis concept and the related taxes for passengers.
He also said that other countries also impose taxes (in the form of Goods and Services Tax (GST) or value-added tax (VAT)) on LVG such as Australia (10 per cent), New Zealand (15 per cent), Norway (25 per cent).
For Singapore, its GST will increase to eight per cent this year and nine per cent next year. Starting from this year, overseas sellers will need to charge GST to customers in Singapore if the imported goods are valued at below S$400.
In the Dewan Negara, Shahar had said most of the items bought online from overseas sellers are not essential items such as rice, sugar, vegetables and that the change in prices with the new LVG sales tax does not involve items that are expected to impact inflation.
More clarification needed
In its December 27 highlights of the RMCD’s draft guide, KPMG also listed some practical issues related to the new tax which will need further scrutiny, such as whether a consignment with total value of more than RM500 (but with individual items valued below RM500) is considered to be LVG.
The other practical issues which KPMG highlighted include whether it is the seller or the online platform owner who is responsible for charging the LVG sales tax, and the need for proper procedures to determine whether goods are covered by the new tax if the registered seller sells both goods delivered from overseas and locally-delivered goods.
The full KPMG document can be read here.