New Sales Tax On The Horizon: Not An April Fools' Joke!

• Law Firm: Zul Rafique & Partners
• Subject Matter: Tax, Sales Taxes: VAT, GST
• Author: Mr Feruz Anwar Seth, John Van Huizen and Jeyaganesh S Ravi (Pupil-in-Chambers)
• Published date: 28 March 2023

INTRODUCTION

The Sales Tax (Amendment) Act 2022 ("Amending Act") was passed by both Houses and received the royal assent in October 2022. With its passing, the Amending Act brings with it a new sales tax on low value goods ("LVG") that are being sold on online marketplaces which will come into effect on 1st April 2023¹.

The Sales Tax (Determination of Low Value Goods) Order 2022² read together with the Amending Act defines LVG as goods purchased online from overseas which are valued not more than RM500.00. One of the main reasoning behind the introduction of this new sales tax, we are told, is to ensure the fair treatment between low value goods manufactured in Malaysia and those that are imported from overseas manufacturers and suppliers.

CURRENT POSITION UNDER THE LAW

Currently, LVG worth RM500.00 or less are not subject to any tax when imported into the country in accordance with the de minimis facility and this is said to cause unfair treatment to local traders because while imported goods are not taxed, locally produced goods are subject to sales tax.

The existing law on sales tax can be found in Part 3, s.8 of the Sales Tax Act 2018 ("STA 2018"). It does not make any specific reference to low value goods and in fact, the STA 2018 as a whole is silent on low value goods. s.8 merely states that a sales tax will be levied on all taxable goods whether manufactured in Malaysia or imported into Malaysia. The existing law also makes no specific reference to online marketplaces. Currently, the rate of sales tax is levied at 5%, 10% or on a specific rate.

WHAT CHANGES CAN WE EXPECT TO SEE

The Sales Tax (Rate of Tax for Low Value Goods) Order 2022 states that the rate of taxation will be fixed at 10% for LVG. Therefore, all customers will be required to pay an additional 10% tax for any LVG purchased starting from 1st April 2023.

The 10% sales tax, however, will not apply to any delivery fees or insurance cost for the purchase of the LVG from overseas to Malaysia. For example, if a person purchases a watch through an online platform and the price of the watch is RM200.00 with a delivery cost of RM50.00, then the 10% tax levied should be on the value of the watch only which is RM200.00 and not the total cost of RM250.00. This is reflected in s.8 of the Amending Act³ which substitutes the earlier provisions of the principal act.

WHO IS AFFECTED?

The changes introduced in the Amending Act will affect both Malaysians and foreigners as s.2 of the Amending Act...