PETALING JAYA: The implementation of a 10% sales tax on low-value goods (LVG) costing RM500 and below sold online is expected to allow local businesses to market their products of the same quality at an even selling price, thus boosting consumer demand.
Putra Business School economic analyst Ahmed Razman Latiff stated that the tax, which would start on Jan 1, is aimed at stabilising prices between imported and local goods.
He said imported LVGs are not subjected to any tax currently, while a 6% sales and service tax (SST) is imposed on locally produced items. This has caused the sidelining of locally produced goods.
“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 6% SST will make local goods more expensive,” he explained.
Besides this, he said the introduction of the 10% LVG tax would make local goods appear more affordable and attract higher demand.
“This tax is only imposed on goods valued at less than RM500, so even though the tax rate is 10%, it is not burdensome as it applies to low-value items solely,” he said.
On Dec 18, the finance ministry announced that a 10% 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).
The ministry said 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.
This practice aims to facilitate ease of customs clearance for postal and courier shipments.
However, the proliferation of online retail has created an unfair advantage for online businesses selling directly to Malaysian consumers compared to physical retail businesses in the country.
Razman said the tax would not only help local businesses to step up their sales which in turn could lead to more job opportunities and a better sustained domestic economy but also increase the government’s income as well as strengthen the ringgit via the reduction of overseas cash flow.
Meanwhile EMIR Research head of social, law, and human rights Jason Loh 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% represents an additional RM1 to the purchase price of the imported good of RM10 which represents up to 4.7% in terms of real purchase value when taking into account the conversion costs,” he said.
In addition, Loh said eroding purchasing power and expenditure capacity of consumers would also encourage the switch to domestically available items.
He said the implementation of the 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, avoiding an inflationary knock-on impact,” he said.
However, Universiti Utara Malaysia senior finance lecturer Adilah Azhari said the tax would unavoidably affect some online sellers like those on Shopee who primarily sell imported goods.
She said traders on the online platforms can offer lower prices because they have fewer overhead costs and can reduce expenses but if an additional 10% 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 by 5% to 10% (discussed between), why did they opt for an immediate 10% imposition on LVG? In my opinion, this is not the right time to introduce this tax, given the rising cost of living,” she said.
Source: https://www.freemalaysiatoday.com/category/business/2023/12/21/mixed-views-on-10-sales-tax-on-imported-low-value-goods/