Will the new 10% online shopping tax drive Malaysians to physical stores? Industry experts weigh in

The state of online shopping in Malaysia looks significantly different in 2024 with the introduction of a new 10% tax on shopping done online for low-value goods as of 1 January.

With the current economic state of the world putting significant restrictions on consumers' spending power, this is certainly a blow to online realtors.

In fact, in a 2023 ASEAN Consumer Sentiment Study by UOB, it was found that consumers in the ASEAN region are more concerned about their finances, work, health and wellbeing and surrounding environments. The study also found that 78% of consumers in the region cite finances as a leading source of concern.

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With a 10% tax now implemented for low-value goods bought online, will online shopping take a dip in Malaysia? According to Cindy Eliza Vaz, chief digital officer, IPG Mediabrands, despite the tax, it is likely that online shopping will still continue to be significantly relied upon.

In fact, the 10% online shopping tax is a great time for local brands to stand out, especially if non-local brands decide to pass the tax on to buyers, said Vaz.

She added that while the 10% online-shopping tax may not change the current shopping habits of Malaysians, it still impacts consumers who are more price sensitive.

To effectively market to them, Vaz said that marketers should focus on value as budget-conscious consumers are attracted to long-term savings against short term gains. Loyalty programmes may also be a good move, Vaz said.

Additionally, with online shopping continuing to make up a significant portion of sales, digital marketing strategies should be more focused and targeted. In fact, according to Vaz, there should be a push to highlight the convenience and variety of options available online. Through that, we may see more shifts. She said:

We may see product strategies shift, especially for online retailers and eCommerce channels.

"We may see the resurgence of 'tax free' marketing strategies, with discounts being the second highest online purchase drivers in Malaysia. We may also see a surge of 'Buy Now, Pay Later' options", added Vaz.

Will more consumers move to physical stores?

Saying that, it is important to note that the tax is specific to overseas online shopping for a cart value below RM500 per transaction and that it may not be intended to move people to physical stores.

In fact, Malaysia's eCommerce market is expected to hit US$30 billion by 2025, according to Google, Temasek and Bain and Company's e-Conomy SEA 2023 report. It added that even though foot traffic in shopping malls has recovered, Malaysian consumers have held onto the habits to make their lives easier with eCommerce. 

Industry heavyweight Ranganathan Somanathan, co-founder of RSquared Global Ventures noted that the tax will likely not see any reversal towards physical stores but that it is likely to only impact highly price sensitive consumers. Of which, he would expect consumers to organise themselves, collate orders and purchase in bulk to operate above the threshold of RM500.

For large platforms and portals, Somanathan said that there is a chance they might absorb the tax. However, smaller businesses are likely to price in the tax and pass the burden on to the consumer.

Deals and rewards are then a good strategy, especially when targeting budget conscious consumers. This is especially since they often offer best value for money experiences, said Somanathan.

Another solution would be to keep overall the overall costs down, including marketing costs, and to then pass on the savings to consumers, said Somanathan.

Keeping the overall costs down is fundamental to winning in this space.

He added that layering a compelling pricing strategy with a meaningful emotional reason, such as sustainability and supporting local communities, has the potential to create a competitive advantage for marketers too.

Karen Koay, head of digital experience and eCommerce VML Malaysia agreed, adding that online marketplaces may never replace malls, but that both entities will need to co-exist for brands to achieve a better conversion rate.

Co-existing, according to Koay, may look like using physical stores to convince a consumer by allowing them to look, touch and feel a product in person, before sending relevant ad messaging and promo codes in the online space in order to “close the deal”.

Koay added that promotions and deals could even hook consumers into a rewards program that will enable them to reap long-term rewards.

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