Overall, the LVG tax is a good move to provide an equitable tax treatment on local and imported LVG. — AFP
FOR most of us, the start of a new year means new resolutions and new beginnings.
This time round, Jan 1 2024 will also mark the start of the imposition of the sales tax on low-value goods (LVG tax) in Malaysia.
The LVG tax was initially announced in Budget 2022 and was supposed to come into force on April 1, 2023. It was later postponed until further notice.
The postponement was not a bullet dodged but merely a cost postponed.
The Appointment of Effective Date for Charging and Levying of Sales Tax on Low Value Goods was gazetted on Dec 8 to officially fix Jan 1, 2024 as the effective date for imposing the LVG tax.
This is a well-intended move to level the playing field for local sellers, bolster the local economy and to boost the country’s revenue.
However, as with the introduction of any new tax, there is bound to be some teething issues around the mechanism for both businesses and consumers.
We have heard of two beliefs floating around businesses and consumers on the LVG tax mechanism.
The first belief is that any LVG that is imported into Malaysia below RM500 will fall under the scope of this new tax, regardless if it is brought into Malaysia via air, sea or land.
The second belief is that any LVG below RM500 brought into Malaysia by courier via air mode is exempted from tax because of the de minimis facility, a loophole that consumers can explore.
Both are true to a certain extent, except that the second belief is not a loophole.
What is the LVG tax?
Under the LVG tax:
> A 10% sales tax will be imposed by a registered seller on all goods (with certain exceptions) priced at RM500 or less, which are sold online and brought into Malaysia via land, sea or air.
> A registered seller is any seller whose total sale value of LVG in a 12-month period exceeds RM500,000.
Sellers can either be local and overseas sellers (who sell LVG directly to consumers) or local and overseas online marketplace operators.
Changes next year
As a general rule, goods imported into Malaysia are taxed at the point of import, if taxable.
Currently, there is a de minimis facility for goods, with CIF (cost, insurance and freight) value of RM500 and below, imported via air courier service including postal service.
These goods are not subject to the sales tax on import.
Many of us are knowingly (or unknowingly) purchasing LVGs tax-free courtesy of the de minimis facility – provided under Item 24, Schedule A of the Sales Tax (Persons Exempted from Payment of Tax) Order 2018.
Come Jan 1, 2024, the de minimis facility will still exist for LVG imported using air courier service (including postal service) through selected airports.
The facility is only to facilitate a faster customs clearance process (ie, pre-alert manifest declaration with minimal data requirement) and it does not exempt the registered seller from charging the LVG tax at the point of sale to the consumers.
All LVGs brought into Malaysia regardless of its mode will be subject to LVG tax.
The one way you can buy LVG without incurring the LVG tax would be by buying from a non-registered seller and importing by air courier.
Potential challenges
A problem would arise if a seller should be registered but is not. If customs is not able to enforce the registration requirement, the objectives of introducing the LVG tax would not be met.
Also, further complications may arise where there are mixed goods consignment (ie, LVG and non-LVG in one consignment).
For example, product A is sold at RM100 while Product B is sold at RM600 by a registered seller.
The registered seller is required to charge a 10% LVG tax on product A in their invoice to the consumer.
On the other hand, as product B is not an LVG, tax is not collected by the registered seller but the consumer is required to pay sales tax on product B during customs clearance.
How does the seller or forwarder distinguish the tax-paid goods from the tax-unpaid goods at this point?
Potential complications may arise if the registered seller does not state its LVG registration number on the consignment note, resulting in customs imposing sales tax on product A at the point of import.
Then, tax on product A is collected twice, once at import and another by the registered seller, burdening the consumer with unnecessary extra tax.
Based on customs’ guidelines, it is said that in situations like this, the registered seller is supposed to refund the LVG tax collected to the consumer.
This puts the burden on the registered seller to do it right the first time to avoid operational issues like this from happening.
Overall, the LVG tax is a good move to provide an equitable tax treatment on local and imported LVG while contributing to the country’s revenue.
However, it is only fair to the consumers that the right amount of tax is paid.
In anticipation of the upcoming LVG tax, businesses should be ready to handle the LVG tax from a technical and operational perspective, including navigating certain grey areas in line with the company’s policy in the event of an LVG tax refund and to train their employees to manage the situation efficiently.
Customs has communicated changes to import procedures in their Guide.
Businesses should review the requirements under the new procedures, seek clarification where needed and communicate to their stakeholders promptly in view of the short preparation time.
For consumers, we can make an informed decision whether to buy LVG from a seller by checking if they are registered for the LVG tax.
Annie Thomas is director and Gan Chen Ni senior associate of PwC Taxation Services Malaysia. The views expressed here are the writers’ own.
