KUALA LUMPUR: The upcoming 10 per cent sales tax on low value goods (LVG) for online purchases from foreign vendors is expected to bring in between RM200 million to RM300 million for the government's coffers, and not cause an increase in prices for online spending across the board.
According to Tratax Sdn Bhd executive director Renganathan Kannan,an across the board increase is not expected because the tax is not applicable for services and food beverage purchases, as well as local vendors who are supplying inventory in Malaysia.
He said while some foreign vendors (who are supplying from inventory maintained outside of Malaysia) may increase the price by 10 per cent, others may also make a business decision to absorb the tax in the price to maintain competitiveness.
"The introduction of sales tax on LVG is an important example to reiterate that the purpose of taxation is not only to raise fiscal revenue for the government."
"Instead, the tax system should uphold neutrality, efficiency, certainty and simplicity, effectiveness and fairness, and above all should be flexible," Tratax Sdn Bhd executive director Renganathan Kannan told Business Times.
He said implementation of sales on LVG upholds neutrality which is beneficial to local players, provides a fair treatment to both industry and people while being both simple and effective in implementation.
"It's not just about additional revenue to the Government," he added.
Harvey & Associates managing partner Harvindar Singh estimates that collection from the proposed LVG tax is estimated to bring in an additional RM200 million to RM300 million for government's coffers, a mere one per cent increase from the government's annual Sales and Service Tax (SST) revenue.
In 2021, the government collected RM25.6 billion in SST and is expected to generate RM29.71 billion in 2022 and RM32.06 billion in 2023.
Ranganathan said historically, Malaysia (like most other countries) introduced the exemption on low value consignment due to administrative challenges of monitoring and doing Customs duty collection on thousands of consignments each day.
At the present digital age, given the raise of e-commerce, many jurisdictions have adopted the approach to request platform operators to levy the tax at the time of sale.
Hence, from a policy perspective there is no unfair advantage for foreign operators and yet the Customs clearance process remains efficient given that the tax is levied at the point of sale.
Harvindar said the LVG tax is not unique to Malaysia and other countries have imposed such a regime under their Goods and Services Tax (GST), including Australia, New Zealand and Singapore.