On August 4th, the Dewan Rakyat (House of Representatives) passed the Sales Tax (Amendment) Bill 2022 (“Bill”), amending the Sales Tax Act 2018 to include a provision to tax low-value goods (i.e. goods which have a sale value of not more than RM500, sold online and imported into Malaysia using air courier service through the prescribed international airports )(“LVG”). The Bill is targeted for implementation on 1 January 2023, and in preparation for that, we set out below a brief background on sales tax laws in Malaysia and the key changes under the Bill.
WHAT IS SALES TAX?
Sales tax is charged and levied on taxable goods (1) manufactured in Malaysia by a registered manufacturer; or (2) imported into Malaysia.
Generally, goods are subject to a sales tax at a rate of 10%, though certain goods such as building materials, personal computers, telephones, watches and car safety seats for infants and young children are taxed at a reduced rate of 5%.
On the other hand, goods manufactured for export and other goods such as live animals, essential food items, books, bicycles, chemicals, pharmaceutical products and fertilisers are exempted from sales tax.
KEY CHANGES UNDER THE BILL
Previously, LVG manufactured outside of Malaysia were exempt from sales tax when delivered to Malaysia (“Sales Tax Exemption”). Some foreign businesses have been known to take advantage of this Sales Tax Exemption by declaring high-value items as items costing RM500 or below to avoid taxation.
With the passing of the Bill, the Sales Tax Exemption is removed and is superseded by a new provision, which imposes sales tax on LVG. It is proposed that the sales tax applied will be a flat rate of 10% and will be imposed by the online seller to the purchaser at the time of purchase.
RATIONALE FOR THE BILL
- Primary purpose: Finance Minister, Tengku Zafrul has stated that the Sales Tax Exemption has resulted in the unjust treatment of local retailers, as domestic goods remain subject to sales tax. He went on to further state that the aim of the Bill therefore, is to ‘level the playing field’ between international and local retailers and to encourage Malaysians to purchase domestic goods.
- Secondary purpose: Deputy Finance Minister, Datuk Mohd Shahar Abdullah has said that the Bill also aims to increase tax revenue and the Malaysian Government is expected to collect RM200 million per year from the implementation of the tax, to be used for the development of the
If the primary purpose of the Bill is truly to level the playing field between foreign and local retailers and encourage Malaysians to purchase locally made goods, the law could have instead been amended to waive the 10% online sales tax for local manufacturers in respect of domestic goods priced below RM500.
Instead, the imposition of sales tax on LVG will not only increase the price of LVG but will also increase the tax burden of Malaysians at a time of soaring prices. Amid the rising costs of living in Malaysia, this Bill may be a win for local online retailers, albeit at the expense of the Malaysian consumer.
Get in touch with us if you have any questions on the amendments to the Sales Tax Act 2018! We regularly advise online businesses, start-ups and SMEs on regulatory compliance in various areas of Malaysian law.