The Eyes on Low-Valued Goods (LVG) Tax

The level of internet penetration in Malaysia has increased substantially, facilitating individuals’ access to online platforms. Significant expansion of online platforms was observed in Malaysia, and this trend has almost certainly persisted or transformed since then. The Malaysian e-commerce industry has been expanding at a consistent rate, with Lazada, Shopee, and Zalora becoming increasingly popular. The proliferation of e-commerce has been aided by the accessibility of diverse payment methods and the convenience of online purchasing.

Low-Valued Goods (LVG) Tax

The tax policies of a nation have a significant impact on its economic environment. Levying taxes on items with little market value is one topic that has received more attention recently.

This article delves into the possible effects of this kind of tax and how it may affect companies, individuals, and the economy as a whole. The long-postponed Sales Tax on LVG will take effect on 1 January 2024, according to an announcement made on the website of the Royal Malaysian Customs Department (“RMCD”). Imported items with a value below RM500 are now subject to low-value goods (LVG) taxes collected by online retailers. Unless otherwise specified, LVG includes any commodities imported into Malaysia by land, sea, or air that do not exceed RM500 in price and do not include cigarettes, tobacco products, intoxicating liquors, electronic cigarettes, or preparation of sorts used for smoking.

Cigarettes, tobacco products, alcoholic beverages, and smoking pipes are not included on this list of commodities since they are already subject to several taxes: import, excise, and sales.

The Rationale Behind Low-Value Goods Tax

Taxes on low-value commodities are a common way for governments to raise money, help local companies compete, and address issues of tax evasion. Legislators are looking for measures to ensure corporations pay their fair share into the national treasury, especially with the growth of online shopping and international transactions.

Effects on Local Businesses

A key rationale for taxing low-value commodities is to shield local companies from predatory rivals. Local companies are disadvantaged when foreign vendors may undercut them on price because of tax breaks.

Impact on Consumers

Local companies may have been the intended beneficiaries of the tax, but consumers will undoubtedly feel the immediate effect. Higher prices brought about by the additional tax on low-value items may diminish consumers’ buying power. On the other hand, some who are in favour of the idea say that the potential long-term advantages, such as a flourishing local market and more job prospects, might be worth it.

Impact on E-commerce Platforms

The implementation of a low-value products tax can add complexity and compliance difficulties for e-commerce platforms, which often enable cross-border transactions. If they have to change their systems to calculate and pay taxes for sellers, there can be extra administrative expenses. This change has the potential to affect the online retail market’s dynamics by making e-commerce platforms less competitive in general.

Consumer Behaviour Changes

A tax on low-priced items might change purchasing habits. Some may choose to buy from local firms instead of paying more taxes to help domestic industries develop. Others might keep looking for cheap choices abroad, which might cause fewer people to buy things online. Economic and trade patterns are susceptible to domino effects caused by changes in consumer behaviour.

A low-value commodities tax would have far-reaching consequences for companies, customers, and the economy as a whole. Supporting local firms and guaranteeing fair competition contributes to a more robust and balanced economy in the long run, even if there are short-term repercussions like higher pricing and logistical issues. When creating a sustainable and fair economic climate, policymakers must weigh the benefits and drawbacks of various options and implement plans to deal with any problems that may arise.

About the Author:


Senior Lecturer, Faculty of Business, Accountancy & Law, SEGi College Kota Damansara

Dr Tan was an industrial practitioner in a Japanese multinational manufacturing company, and he has been in the education industry for more than a decade. Prior to joining the SEGi family, he was leading faculties in various Malaysian colleges. Dr Tan introduces blended innovative and creative pedagogy in his lectures, which include Business Simulation Games to make teaching and learning sessions exciting and easy to instil within students’ mindsets. In addition, Dr Tan is also actively involved in entrepreneurship consulting programmes and digital entrepreneurship activities. He works closely with MNCs to cultivate and nurture young talent since he is passionate about young talent management. Dr Tan is a fellow member of the Institute of Marketing Malaysia, and his research interest spans a wide variety of digital entrepreneurship and customer relationships.

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