Online shopping has revolutionised how Malaysians buy goods, offering a world of products at their fingertips. However, with the ever-expanding world of e-commerce, the Malaysian government is adapting its tax policies to level the playing field for local and imported goods. One such adaptation is implementing a 10% sales tax on low-value goods (LVG) purchased online, set to take effect from April 1, 2023.
The Royal Malaysian Customs Department (RMCD) has outlined the critical points of this new tax policy, shedding light on what it means for consumers and sellers alike. Here’s a breakdown of the essential aspects of Malaysia’s online shopping LVG tax.
Import Tax and Duties in Malaysia
Understanding Malaysia’s import tax and duties is crucial for businesses and individuals engaged in international trade. Malaysia imposes custom tariffs primarily on a value-added basis, with an average applied surcharge of 6.1% for industrial goods. The rates may vary depending on the country of origin due to Free Trade Agreements (FTAs). Malaysia has bilateral and regional FTAs with several countries, allowing for lower or zero business customs taxes.
Goods imported into Malaysia are subject to Sales & Service Tax (SST), set at 10%. Some goods are taxed at a reduced rate of 5%, while others are exempt from sales tax. For example, certain food items, electronics, and personal hygiene products are exempt from import taxes.
Businesses should also be aware of prohibited items which cannot be imported into Malaysia to avoid costly mistakes. These include counterfeit money, poisonous chemicals, and things unsuitable for peace or detrimental to Malaysia’s interests.
A solid grasp of Malaysia’s import tax and duties sets the stage for understanding the implications of the 10% LVG sales tax on online shopping. These existing tax policies, which vary based on the nature of goods and their country of origin, have long governed international trade in Malaysia.
Now, with the introduction of the LVG sales tax targeted explicitly at low-value online purchases, it’s crucial to explore how this new development will affect both consumers and sellers engaging in e-commerce. Let’s delve into the specifics of the LVG sales tax and who will be impacted by this change.
What Does the 10% LVG Sales Tax Entail?
The 10% LVG sales tax will be applied to imported goods purchased online at less than RM500. These goods must be delivered to customers in Malaysia by air, sea, or land transport, which includes duty-free areas and free zones. This tax will not apply to specific items such as alcohol, tobacco products (including smoking pipes and pipe bowls), electronic cigarettes, vapes, and non-nicotine liquid or gel preparations.
It’s essential to clarify that this sales tax will be charged during the order confirmation by the online shopping platform. Therefore, if you order an LVG item before April 1 2023, but the goods are scheduled to arrive after this date, you will not be subject to the 10% LVG sales tax. For example, if you purchase an LVG item for RM300 with a delivery charge of RM10 after April 2023, your total cost will be RM340, compared to RM310 if you had purchased before this tax came into effect.
Who Will Be Affected?
Merchants selling LVG goods will be directly affected by this new tax. They can apply to become registered sellers with the RMCD, as the relevant legislation has been in effect since January 1 2023. All sellers, whether based in Malaysia or abroad, will be required to apply for registration if they meet the following criteria:
- Sell LVG imported into Malaysia via land, sea, or air transport.
- Have an LVG annual sales value exceeding RM500,000 in Malaysia.
Malaysia E-Services Service Tax
Malaysia has extended its service tax to electronic services provided by non-resident providers and online sellers. Effective January 1, 2020, this measure aims to ensure that digital services and goods provided by foreign entities are subject to the same tax obligations as local providers. B2B services are also liable to the tax when provided by non-resident providers.
The definition of digital services in Malaysia is broad and includes streaming, membership to online clubs, e-books, apps, cloud services, and more. The tax liability is triggered if the consumer meets specific criteria, such as being a resident of Malaysia, using a Malaysian payment provider’s credit card, or having an IP address registered in Malaysia.
Providers of digital services are required to track and determine the location of their consumers in Malaysia. Non-resident providers have a service tax registration threshold of RM500,000 per annum.
How Luwjistik Helps
Luwjistik provides a holistic logistics platform solution tailored to optimise operational efficiency and promote collaboration among businesses and a network of service providers in the context of online shopping and taxes in Malaysia. Our platform simplifies the calculation of customs tariffs, including duties and taxes, ensuring a seamless clearance process, specifically for online retail.
Here’s how Luwjistik can support your online shopping business in Malaysia, particularly in managing taxes:
- Marketplace Access
- Gain access to a network of trusted partners, including customs brokers familiar with Malaysia’s tax regulations. Choose customs brokerage services that align with your e-commerce requirements. These brokers will assist you in navigating Malaysia’s specific customs tariffs and taxes, providing expertise in tax classifications and trade regulations.
- L-Freight Platform
- Streamline customs procedures for your online retail operations through document submission and tracking. This tool guarantees precise and transparent customs declarations, reducing the risk of tax errors. Monitor your shipments in real time, including their customs clearance status in Malaysia.
- Node Calculator
- This comprehensive tool empowers online retailers to navigate Malaysia’s customs tariffs and taxes, enhancing the efficiency of their supply chain operations. It breaks down costs at each stage of your e-commerce supply chain, providing transparency and aiding well-informed decision-making when managing taxes.
Embark on your journey to explore our advanced logistics solutions for online shopping and tax management in Malaysia by visiting luwjistik.com or contacting our representative at commercial@luwjistik.com today.
