The Sales Tax (Rate of Tax for Low-Value Goods) Order 2023 establishes a 10% sales tax rate for low-value goods, replacing the previous order from 2022.
This order, made by the Second Minister of Finance, will be effective from 1 January 2024 and is in compliance with the Sales Tax Act 2018.
The Development of sales tax on imported low-value goods (LVG)
In general, sales tax is applied to goods sold in Malaysia and paid for by the relevant importer, wholesaler, or retailer before sale to the consumer in Malaysia.
However, there was a loophole in the sales tax. Globally, there is a common practice not to impose sales tax and import duty on imports below a De Minimis (minimal) value, which was set at RM500 for Malaysia, to facilitate ease of customs clearance for postal and courier shipments.
The proliferation of online retail has created an unfair advantage for online businesses selling directly to Malaysian consumers compared to retail businesses in Malaysia.
Other neighbouring countries have already taken action to address this loophole, with taxes on LVG being applied in Singapore effective 1 January 2023 and in Indonesia effective 1 April 2023.
For Malaysia, the sales tax legislation on imported LVG was announced in Budget 2022 and was passed in Parliament on 4 August 2022. And the charging and levying of sales tax on LVG will take effect on 1 January 2024.
Sales Tax (Rate of Tax for Low-Value Goods) Order 2023 [P.U. (A) 404/2023]