Can Malaysia’s e-commerce side hustles survive as ‘low-value goods’ tax hike bites?

A 10 per cent tax on purchases of ‘low-value goods’ under 500 ringgit (US$115) has left small e-commerce businesses worrying for their future
Social media users question the additional burden on medium- to lower-income Malaysians who will be most affected by the new tax, instead of the rich

Malaysia

Hadi Azmiin Kuala Lumpur

Published: 6:00pm, 15 Jan, 2023

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Like many Malaysians with a small e-commerce side hustle, Farah Asyikin says her business selling accessories for mobile phones may be finished once a 10 per cent tax on purchases of “low-value goods” under 500 ringgit (US$115) comes into force.

Malaysians are up in arms over the expansion of the sales tax from April to include low-cost items easily plucked from the internet, which fuel cottage industries selling everything from cosmetics to K-pop merchandise that plump up earnings in the middle of a cost-of-living crisis.

Prime Minister Anwar Ibrahim’s government has inherited the measure from Ismail Sabri Yaakob’s administration, which introduced it in last year’s budget to bring in an additional 200 million ringgit (US$46 million) a year via the tax.

A woman sells balloons outside a shopping centre in Kuala Lumpur. Not everyone is unhappy with the tax. Some say it levels the playing field for importers. Photo: Xinhua

But it has left small e-commerce businesses worrying for their future – and an ordinary public which has struggled through the pandemic questioning why taxes are not targeting the rich.

“Not everyone can afford to buy in bulk,” said Farah of her business that relies on sites such as Alibaba and Taobao for supplies, which will no longer be competitive once the tariff comes into force.

“It’s for side income, but maybe I need to start doing something else,” said Farah, who started her business after being made redundant from her clerical job at the height of the pandemic.

On social media, many questioned the additional burden on medium- to lower-income Malaysians who will be most affected by the new tax, with one Twitter user likening it to “taxing canned sardines but not lobsters”.

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“If it’s for above 500 ringgit then fine, it can be considered as a tax for the rich, but you are taxing below 500 ringgit. Too much!” wrote Twitter user Maisarra Anuar, reflecting on cosmetics she had bought from South Korea.

Others are lamenting that their purchases from abroad – books from Amazon and Book Depository or merchandise such as action figurines and K-pop ephemera – are about to surge in price.

“There goes my money for K-pop albums,” said another Twitter user Nur Asma, responding to the news.

While a lot of the grouses are coming from end users who have to pay more for their purchases, small-time businesses online are also dreading the tax as they rely on China for their stocks of merchandise.

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At the time, the government argued the tax would also protect local business owners and strengthen the domestic market from outside competition.

“When we empower the local market, local business owners, surely our money does not flow out,” said First Deputy Finance Minister Shahar Abdullah last August when the tax was proposed.

Anwar, who is both prime minister and finance minister, is set to put forward the country’s 2023 budget in February.

Malaysia has grown increasingly comfortable with online purchases, which are backed by widely accepted cashless transactions, as more than 80 per cent of its population of 32 million now uses e-commerce sites, predominately via smartphones.

Last year, the country recorded 290.3 billion (US$66.5 billion) ringgit in annual e-commerce income, a spike of 18.3 per cent from the previous year, according to the Department of Statistics Malaysia.

Malaysia recorded 290.3 billion ringgit in e-commerce income last year, a spike of 18.3 per cent from 2021, according to official statistics. Photo: Bloomberg

Lambasting the new tax, writer Firdause Jesfry said that the public should push for more progressive taxes on wealth, windfall, inheritance, capital gains and other sources of income or else be stuck with regressive taxes that hurt the middle- and lower-income groups.

“If we don’t push them to tax the rich, who will they tax more to ensure the fund will be sufficient? Us,” Firdause said.

Economist and former member of parliament Nungsari Ahmad Radhi echoed this sentiment, saying that while he agreed the country’s revenue base needed to be increased, tax increases should not be done in a piecemeal manner like this without addressing wealth-based taxes such as those imposed on capital gains.

“It has to be done as comprehensively as possible to be seen as equitable,” Nungsari told This Week in Asia.

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Not everyone is unhappy with the tax, such as sellers like Satish Raguchandran who have to pay import fees and a 10 per cent sales tax for his merchandise.

“It does level the playing field for us. Currently, some sellers are selling directly from China and they have a tax advantage,” said Satish, who owns home appliance brand Russell Taylors.

Malaysia is not the first country to implement such a tax on low-value goods, with Australia, New Zealand and Singapore imposing similar taxes through their Goods and Services Tax (GST) system.

Singapore’s then-Deputy Prime Minister and Minister of Finance Heng Swee Keat in his 2021 budget speech said the city state’s extension of its GST to include low-value goods from 2023 would similarly “ensure a level playing field for local businesses”.

The rate of GST in Singapore is staggered to rise from 7 to 8 per cent from January 2023, and then to 9 per cent from January 2024, according to the Inland Revenue Authority of Singapore.

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Malaysia’s own experiment with GST ended in 2018 just three years after it was introduced by scandal-ridden former leader Najib Razak, with the public seeing it as an effort to recoup the money he stole in the 1MDB financial scandal.

Despite calls for its reintroduction, the stigma of its association with Najib is making subsequent administrations shy away from the tax, with Anwar’s deputy at the finance ministry, Ahmad Maslan, saying it is not a topic currently being explored.

“The government has not discussed it. There has been no decision on that yet,” Ahmad said.

Instead, the government is looking for ways to reduce existing tax leakages, which cost the country up to 5 billion ringgit in lost revenue just from the sale of illicit cigarettes.

“If we tighten things up, even without new taxes we can increase our revenue by 3 to 5 billion ringgit,” he said.