Malaysians fume over new cheap goods tax amid already higher cost burden: 'can't even buy underwear'

Malaysians have been raging against the government for most of the week after a tax on cheap goods sold online kicked in on New Year's Day, raising questions on whether the projected revenue earned would be worth the price-tag increases in the country's burgeoning e-commerce space.

A Low Value Goods (LVG) tax took effect on January 1, imposing a 10 per cent levy on imported goods worth 500 ringgit (US$107) or less that are sold through various e-commerce sites.

Malaysia's Ministry of Finance said in a December 18 statement that the tax aims to level the playing field for local enterprises competing with cheaper imports of similar products sold online.

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But local consumers are not having it, with many arguing that the tax would only be an additional burden as they contend with stubbornly high living costs and an impending hike to the country's sales and services tax (SST), which the government will raise to 8 per cent in March after keeping it at 6 per cent since 2018.

"Yes, just tax us until we are not even able to buy underwear," read one comment from a Facebook user in reply to a post about the LVG tax.

The LVG tax - which covers everything from cosmetics to knick-knacks and household items sold online - is estimated to rake in 200 million ringgit in annual revenue for the government. It was initially set for an April 2023 launch, but Prime Minister Anwar Ibrahim postponed it after an outcry from the public and small-time online traders.

Malaysia's e-commerce space was valued at 239.1 billion ringgit in 2022, accounting for 13.3 per cent of the country's total gross domestic product for that year, according to data from the department of statistics.

Experts, however, estimate that retail e-commerce - which is directly affected by the LVG tax - contributes just 2 billion ringgit a year to the total figure. Some argue that tax-induced price surges for cheap online goods are not worth the small bump in revenue for the government.

"The LVG tax will have very little impact on the Malaysian online market except to disadvantage consumers by pushing up prices artificially," said Geoffrey Williams, an economist with the Malaysia University of Science and Technology.

Local news coverage of the tax has tracked a broad range of hikes in the final prices of goods sold on e-commerce sites such as Singapore-based Shopee and rival Lazada, a Southeast Asian online retail platform owned by Chinese giant Alibaba, with some items now costing up to 20 per cent higher.

The introduction of new taxes and any increase to existing taxes will inevitably lead to price shocks, though markets tend to normalise after some time, said Mohd Afzanizam Abdul Rashid, chief economist at Bank Muamalat.

The government, however, needs to increase its sources of revenue to meet its fiscal targets, including narrowing its budget deficit to 4.3 per cent of GDP this year, Mohd Afzanizam said.

In October, the government said it expects to raise an additional 3 billion ringgit annually from the two percentage point hike to the SST.

"So higher taxes and cutting down on expenses are the means to achieve such objectives," Mohd Afzanizam told This Week in Asia.

This article originally appeared on the South China Morning Post (SCMP).

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