Malaysia: Proposed measures for sales tax on low-value goods include new requirements for online sellers

Proposed legislation—known as “The Sales Tax (Amendment) Bill 2022 and Service Tax (Amendment) Bill 2022”—was tabled on 1 August 2022 for first reading in the Parliament.

One of the proposed measures in the bill concerns the sales tax on low-value goods (as proposed in the Budget 2022). Under those proposed changes, online sellers would need to register for sales tax and then to charge sales tax on goods brought into Malaysia. Details about these requirements (such as a threshold amount, the rate, invoice or documents and returns) have yet to be released.

Other proposals would provide:

• The Ministry of Finance could determine the goods or class of goods eligible as low-value goods. Currently, sales tax on taxable goods is determined based on the 10-digit HS code.
• The proposed value of low-value goods that would be subject to the sales tax would differ from the current sales tax value of imported taxable goods which is based on the sum of customs value (i.e., cost, insurance, freight, and duties).
• The Ministry of Finance could determine the price of goods and the manner concerning how goods are brought into Malaysia. Earlier, it was proposed that the sales tax on low-value goods would apply to goods imported into Malaysia via air courier and having a value of RM500 or less (suggesting that goods with a value above RM500 or goods not imported via air courier would be subject to sales tax on import, as usual).
• Sellers that sell low-value goods on an online marketplace or operate an online marketplace for the sales and purchase of low-value goods would need to register for sales tax purposes (suggesting that direct sellers not using an online marketplace to sell goods would not be liable to register for sales tax and that such goods would be subject to sales tax in import, as usual).

The proposed measures for sales tax on low-value goods would effectively expand the types of goods subject to sales tax (since currently such taxable goods are exempt from sales tax). While it appears to be an expansion of the sales tax regime, the characteristics of sales tax on low-value goods would be different, as highlighted above.  The far-reaching effects include complexities such as that the goods would be subject to sales tax under one of two systems—i.e., sales tax on low-value goods sold via an online marketplace or normal sales tax on import for direct sales). 

In addition, although the complexities of determining the tariff code would be eliminated with a proposed goods or class of goods and fixed rate, query whether it would also mean that sales tax on low-value goods would apply to goods that otherwise would be exempt from sales tax (based on the 10-digit HS code)? Other questions to consider are: When the low-value good is sold by a seller that does not meet the threshold to register, how would sales tax be collected? What would happen when goods are returned? How would the sales tax be refunded?

Read an August 2022 report prepared by the KPMG member firm in Malaysia