Malaysia’s tax system is multifaceted, encompassing various taxes like income tax and goods and services tax (GST). This tax was introduced specifically targeting low-value goods – the Low Value Goods (LVG) tax. This blog aims to demystify the LVG tax for entrepreneurs, small business owners, and Malaysian consumers who frequently shop online.

Whether you’re involved in e-commerce, import/export, or logistics, this guide will equip you with the knowledge to navigate this tax regulation and understand the implications for online platforms, including the 8% sales and service tax on locally produced taxable goods. The LVG tax also applies to sellers on online marketplaces, making it important for both buyers and sellers to understand the regulations.

Quick Overview: Mastering Low Value Goods (LVG) Tax in Malaysia

This guide offers a quick dive into Malaysia’s LVG tax on imported goods valued under RM500, covering key compliance tips and practical insights for both businesses and consumers.

Key Takeaways:

• LVG Tax Basics: A 10% sales tax applies to imported goods below RM500 to support local businesses and boost national revenue.
• Who It Affects: E-commerce businesses, import/export operations, and frequent online shoppers.
• Exemptions and Registration: Certain goods (like medical supplies) are exempt, while businesses surpassing RM500,000 in annual LVG sales must register with the RMC.
• Practical Tools: Tax calculators, RMC resources, and consulting services simplify compliance for businesses.

What is Low Value Goods Tax Malaysia (LVG)?

The Low Value Goods (LVG) tax is a sales tax imposed on the importation of goods valued below a certain threshold. Specifically, it targets goods that fall below the RM500 threshold, excluding cigarettes, tobacco products, intoxicating liquors, and smoking pipes. Each Registered Seller will need to provide their LVG registration number during this process to ensure compliance. This tax, also known as the point of sale tax, came into effect on April 1, 2023, marking a significant shift in how low-value goods are treated under Malaysian tax law.

The implementation of sales tax on Low Value Goods (LVG) has been a major change in the tax system and has been in operation since January 1, 2023. This means that all goods valued at RM500 or below from abroad, sold online by sellers and delivered to consumers in Malaysia via land, sea, or air mode, are now subject to the imposition of a flat rate of 10% sales tax at the point of sale.

Low-value goods refer to items imported into Malaysia that individually cost less than RM500. These can include a wide range of products, from electronics and fashion items to small household goods. By understanding the specifics of what constitutes low-value goods, businesses and consumers can better navigate the implications of this tax.

Why Was the Low Value Good Tax Malaysia (LVG) Introduced?

The Malaysian government introduced the LVG tax with several objectives in mind. Firstly, it aims to curb tax evasion, ensuring that all goods entering the country contribute fairly to the national revenue. Secondly, it seeks to level the playing field for local retailers and businesses that have struggled to compete with untaxed low-value imports from foreign sellers, who often do not pay taxes on their raw materials. Lastly, the LVG tax helps increase government revenue, which can be used to fund public services and infrastructure projects with the help of customs agents and import declarations.

Economically, the introduction of the LVG tax has significant market impacts. It encourages consumers to consider local alternatives, potentially boosting domestic sales. Additionally, it ensures that international sellers comply with Malaysian tax laws, creating a more equitable market environment.

How Does the LVG Tax Work?

The LVG tax mechanism is quite straightforward. Here’s a breakdown of the key aspects:

• Thresholds and Tax Rates: Any imported good valued at RM500 or less is subject to the LVG tax. The tax rate is a flat 10%, applied to the value of the good itself, excluding any shipping costs, insurance fees, or other import duties.
• Declaring and Paying the Tax: The responsibility of declaring and paying the LVG tax falls on registered sellers, irrespective of their location within or outside Malaysia. If, within a 12-month period, the total sales value of your imported LVGs exceeds RM500,000, you’ll be required to register with the Royal Malaysian Customs Department (RMC) and comply with the LVG tax regulations.

Impact on Businesses

The LVG tax mechanism is quite straightforward. Here’s a breakdown of the key aspects:

• Thresholds and Tax Rates: Any imported good valued at RM500 or less is subject to the LVG tax. The tax rate is a flat 10%, applied to the value of the good itself, excluding any shipping costs, insurance fees, or other import duties.
• Declaring and Paying the Tax: The responsibility of declaring and paying the LVG tax falls on registered sellers, irrespective of their location within or outside Malaysia. If, within a 12-month period, the total sales value of your imported LVGs exceeds RM500,000, you’ll be required to register with the Royal Malaysian Customs Department (RMC) and comply with the LVG tax regulations.

Impact on Consumers

Consumers who frequently purchase goods online from overseas sellers will likely experience some changes due to the LVG tax. Here’s how it might affect you:

• Tax Implications: The 10% LVG tax will be added to the cost of your online purchases from overseas sellers who are registered under the LVG tax scheme. This may lead to slightly higher overall prices for imported goods.
• Managing Costs: To manage the impact on your online shopping budget, consider comparing prices across different platforms and sellers, factoring in the potential LVG tax when making purchasing decisions.

Exemptions and Special Cases

Not all goods are subject to the LVG tax. Certain categories of goods, such as medical supplies and educational materials, may be exempt. Additionally, special provisions exist for goods that fall under specific conditions, such as items sent as gifts or goods temporarily imported for repair.

Applying for exemptions involves submitting the necessary documentation to Malaysian customs. Businesses and individuals must clearly demonstrate why their goods qualify for exemption, following the outlined procedures. Understanding these exemptions can save money and streamline the import process.

Practical Steps for Compliance

Businesses that meet the registration threshold can ensure smooth compliance with the LVG tax by following these steps:

• Registering with the RMC: Register as a “Registered Seller” with the RMC to obtain the necessary credentials for LVG tax collection and reporting.
• Documentation and Reporting: Maintain accurate records of your LVG sales and tax collected. File tax returns with the RMC as per the stipulated deadlines.

Practical Tools and Resources to Simplify Compliance

Managing LVG tax compliance can be simplified by utilising the following tools and resources:

• Royal Malaysian Customs Department (RMC) Website: The RMC website provides comprehensive information on the LVG tax, including guidelines, registration procedures, and frequently asked questions.
• LVG Tax Calculators: Several online LVG tax calculators are available to help businesses estimate the tax amount applicable to their LVG sales.
• Accounting Software with LVG Tax Features: Investing in accounting software equipped with LVG tax functionalities can streamline the tax calculation, collection, and reporting processes.
• Professional Consultations: Consulting with a tax professional specialising in LVG tax regulations can be particularly beneficial for businesses with complex import structures or those requiring tailored advice.

Conclusion

The LVG tax represents a significant change in Malaysia’s import tax landscape. By understanding the key points of this blog post, you’ll be well-equipped to navigate the LVG tax, whether you’re a business owner or a frequent online shopper:

• The LVG tax is a 10% sales tax levied on imported goods valued at RM500 or less.
• The tax aims to curb tax evasion, level the playing field for local businesses, and generate additional revenue for the government.
• Businesses exceeding the RM500,000 sales threshold within a year must register with the RMC and comply with LVG tax regulations.
• Consumers may experience slightly higher prices for online purchases from overseas sellers due to the LVG tax.
• While most goods fall under the LVG tax, there are exemptions for essential items and specific categories.

Staying informed about the LVG tax regulations is crucial for businesses involved in importing and selling low-value goods. By taking proactive steps towards compliance, businesses can ensure smooth operations and avoid potential penalties.

Need Help with Low Value Goods Tax Malaysia Compliance? Grof Can Assist!

Understanding and complying with the LVG tax can be a complex process, especially for businesses unfamiliar with the regulations. Grof, a leading provider of accounting and corporate secretary services in Malaysia, can offer valuable assistance. Grof’s team of experienced professionals can help you with:

• LVG tax registration with the RMC
• Maintaining accurate LVG tax records and reports
• Streamlining your LVG tax compliance processes