Economist: Scrap inefficient LGV online sales tax

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Economist Geoffrey Williams says the new low-value goods tax would only generate revenue of RM200 million a year for the government.

FMT

An economist has called for the new online sales tax on low-value goods to be scrapped, saying a full review of the national tax collection system is needed.

Geoffrey Williams of the Malaysia University of Science and Technology said the online tax would collect “a measly RM200 million a year, which is barely worth the trouble. It is a terrible idea”.

Williams said the market size for online products to be taxed – goods priced RM500 and below purchased online from overseas – was estimated to only be about RM2 billion.

“The government should abandon the tax altogether and convene a full review of the taxation system,” he told FMT, adding that the system is full of ad hoc taxes that are inefficient in raising revenues.

Williams said the new tax, imposed from Jan 1, might do little to help local suppliers as low-value goods from overseas could still be cheaper than local products despite the new tax.

The tax applies to all local and overseas online markets and is expected to affect Amazon, Lazada, Shopee, AliExpress, Taobao and others.

Last month, Ayer Hitam MP Wee Ka Siong urged the government to postpone the tax, saying the extra 10% levy would burden the lower-income B40 group who often bought household goods, such as electrical appliances or clothing, from foreign online sellers.

Wee also said the tax may face legal challenges as the government cannot effectively regulate purchases on platforms such as TikTok, Facebook and Instagram.

Williams questioned how the Customs Department would determine which products to tax.

Not all foreign sellers would register themselves with Customs, he said.

“I’m not saying there’s no way to regulate this, but it’s a headache. Are they going to hold the item until the tax is paid? And how are they going to evaluate the value of these products? If I’m buying an ebook from Amazon, how are they going to tax these products?”

Another economist, Carmelo Ferlito of the Center for Market Education, said protection of locally produced goods “is only a way to punish consumers” which would reduce the available supply of products and lead to higher prices.

“Malaysian businesses should learn to become competitive without the support of the government. Otherwise, they will remain uncompetitive forever.”

He said the tax would also burden consumers who purchase “low elasticity goods”, – products with a stable demand unaffected by higher prices – such as academic textbooks published in foreign countries that can only be purchased online. – FMT