Is your online shopping subject to additional tax?
Published: Fri, 12/29/23
10% Surprise: New LVG Tax in Malaysia
Implementation of Sales Tax on Low-Value Goods (LVG)
With the development of technology and the increasing convenience of internet access, an increasing number of people have shifted their shopping habits
towards online shopping. While the shift brings several advantages to individuals and online businesses, it is not always the case for traditional retail businesses.
According to the current sales tax
legislation, no taxes are imposed on imports of LVG (priced below RM500). This results in unfair treatment for retail businesses, as locally produced goods are subject to sales tax. In response to these disparities and to address the loophole, the government has reassessed its tax policies by introducing the LVG tax. This initiative reflects the government's commitment to examining the fairness of the tax system. According to the Royal Malaysian Customs Department, the sales tax on LVG was set
to come into effect on 1 January 2024, which aims to rectify the unfair advantage for online businesses selling directly to Malaysian consumers compared to retail businesses in Malaysia.
What is LVG?
LVG refers to all goods that are sold at a price of less than RM500 and are brought into Malaysia by land, sea or air mode. However, this tax will not apply to specific items, such as:
cigarettes;
tobacco products;
intoxicating liquors;
smoking pipes (including pipe bowls);
electronic cigarettes and similar personal electric vaporizing devices;
and
preparation of a kind used for smoking through electronic cigarette and electric vaporizing device, in forms of liquid or gel, whether or not containing nicotine.
What is the tax rate and how is the sales value for LVG determined?
A 10% sales tax will be imposed on the LVG that are sold online and shipped from abroad to customers in Malaysia. Such tax is calculated based on the sales value of LVG, and this excludes any tax, duty, fee or other charges such as transportation, insurance or other cost that are chargeable on the LVG’s sale. Moreover, sales tax on LVG will be charged based on the sale value per
piece/unit.
What is the threshold for registration?
Sellers with a total sales value of LVG brought into Malaysia that exceeds RM500,000 in 12 months period are liable to be registered as Registered Sellers.
In summary, the government’s introduction of sales tax on LVG represents a strategic initiative to foster a more equitable marketplace. It is crucial for both buyers and sellers to stay informed about the LVG and its implications.
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