Sales Tax

Scope of taxation

Sales tax is a single-stage tax imposed on taxable goods manufactured locally by a registered manufacturer, and on taxable goods imported by any person.

“Manufacture” of goods, other than petroleum, is defined as the conversion by manual or mechanical means of organic or inorganic materials into a new product by changing the size, shape, composition, nature or quality of such materials and includes the assembly of parts into pieces of machinery or other products but does not include the installation of machinery or equipment for the purpose of construction. In relation to petroleum, the process of refining that includes the separation, conversion, purification and blending of refinery streams or petrochemical streams.

Special treatment is given to transactions involving Designated Areas (Labuan, Langkawi, Tioman and Pangkor) and Special Areas (free zones, licensed warehouses, licensed manufacturing warehouses and the Joint Development Area).

With effect from 1 January 2024, sales tax is also imposed on low value goods sold on online platforms by registered sellers and brought from overseas into Malaysia. [Refer to the section on “Low Value Goods” below for further details]

Taxable goods

All goods manufactured in Malaysia by registered manufacturers or imported by any person are taxable unless they are specifically exempted by order of the Minister of Finance.

Rates of tax

Sales tax is generally an ad valorem tax. Specific rates of sales tax are currently only imposed on certain classes of petroleum (generally, refined petroleum). The ad valorem rates are 5% and 10%, determined based on the HS Tariff Classification of the goods.

Goods exempted

All goods exported from Malaysia are exempted from sales tax. There are also goods which are specifically exempted by order from the Minister of Finance. A complete list of goods specifically exempted from sales tax can be found in Schedule A of the Sales Tax (Goods Exempted from Tax) Order 2022.

With effect from 1 November 2024, it is proposed that mastectomy bra under the tariff code 6212.10.1100 and 6212.10.9100 will be exempted by way of application to the Ministry of Finance submitted from 1 November 2024 to 31 December 2027.

Registration

A taxable person is a manufacturer who is registered or liable to be registered for sales tax. A manufacturer is liable to be registered if the total sales value of his taxable goods for a 12-month period exceeds or is expected to exceed RM500,000. Any manufacturer who is not liable to be registered for sales tax or exempted from registration may apply to the Director General (DG) of Customs for registration as a registered manufacturer.

Exemption from registration

Certain manufacturing activities are exempted from the registration requirement. They include the manufacturing of finished goods of the Royal Pahang Weave, developing and printing of photographs and production of film slides, manufacture of ready mixed concrete, preparation of meals, repair of second hand or used goods and the installation of air conditioners in motor vehicles.

Payment of sales tax and taxable period

Sales tax is due at the time the taxable goods are sold, disposed of otherwise than by sale, or first used otherwise than as materials in the manufacture of taxable goods, by the taxable person. However, in relation to the classes of petroleum that are subject to sales tax, special provisions apply regarding the time when sales tax is due.

Any sales tax that falls due during a taxable period is payable to the Royal Malaysian Customs Department (RMCD) latest by the last day of the month following the end of the taxable period. A taxable period is a period of 2 calendar months. However, a taxable person can apply to the DG of Customs to vary the taxable period. If the application to vary the taxable period is approved, the sales tax due is payable to RMCD latest by 30 days from the end of the varied taxable period.

Refund of sales tax on bad debts

A registered manufacturer or a person who has ceased to be a registered manufacturer can apply for a refund of sales tax in relation to bad debts. The conditions for the refund application are that:

the whole or part of the sales tax paid has been written off as a bad debt; and
all reasonable efforts have been made by the applicant to recover the sales tax.

Drawback

A person may apply to the DG of Customs to claim drawback on the sales tax paid in respect of imported or locally acquired goods which are subsequently exported. Drawback does not apply to petroleum.

Sales tax deduction

Registered manufacturers are able to apply to the DG of Customs for the following amount of sales tax deduction on the taxable raw materials, components or packaging materials acquired from local traders and used solely in the manufacturing of their taxable goods.

2% of the total value of taxable goods purchased if the taxable goods were charged and levied with sales tax of 5%
4% of the total value of taxable goods purchased if the taxable goods were charged and levied with sales tax of 10%

Approved Major Exporter Scheme

The Approved Major Exporter Scheme was introduced for traders and manufacturers whose annual sales exceed RM10 million and who export at least 80% of their annual sales. Such approved traders and manufacturers are granted full sales tax exemption on their importation or purchase of goods. Traders and manufacturers who fulfil all the prescribed conditions can apply to the DG of Customs for approval under this scheme.

Persons exempted from payment of sales tax

Certain specified persons are exempted from the payment of sales tax on certain specified goods subject to fulfilling all the specified conditions under the following schedules of the Sales Tax (Persons Exempted From Payment Of Tax) Order 2018:

1. Schedule A

Various specified persons who import/purchase certain specified goods for specific purposes. Examples include importers whose goods are temporarily imported and subsequently re-exported and MIDA endorsed companies/operators in certain industries which import/purchase certain specified goods for use in approved activities.

2. Schedule B

Manufacturers approved by DG of Customs who manufacture specific goods (such as price controlled goods, pharmaceutical products, milk products and exempted goods for export) and import/purchase certain specified goods to be used directly and/or solely for the manufacture of those specific goods.

3. Schedule C

Registered manufacturers or their agents who import/purchase certain specified to be used as inputs for the manufacture of taxable goods or both taxable and exempted goods of the registered manufacturer.

Special incentives

Special incentives in the form of sales tax exemptions are also given to specific items such as the following items as announced in the recent Budgets:

Carbon Capture and Storage (CCS) technology related equipment (refer to “Tax Incentives” chapter)
Nicotine Replacement Therapy (NRT) products
Individually owned taxis and hired cars (refer to "Other duties" chapter)
Studio and filming production equipment (refer to "Other duties" chapter)
Locally assembled electric vehicles (EV) (refer to "Other duties" chapter)

Low Value Goods

With effect from 1 January 2024, sellers (both local and foreign) who sell Low Value Goods (LVG) on an online platform to Malaysian customers are required to register for and impose sales tax on the sale of LVG if the total sale value of LVG for a 12-month period exceeds or is expected to exceed RM500,000.

For the purpose of charging sales tax, LVG is defined in the legislation to mean all goods which are sold at a price not exceeding RM500 and are brought into Malaysia by land, sea or air. LVG exclude the following:

Cigarettes and tobacco products
Intoxicating liquors
Smoking pipes (including pipe bowls)
Electronic cigarettes and similar personal electric vaporizing devices
Preparation of a kind used for smoking through electronic cigarettes and electric vaporizing device, in form of liquid or gel, whether or not containing nicotine

“Seller” means a person, whether in or outside Malaysia, who sells LVG on an online platform or operates an online marketplace for the sales and purchase of LVG.

The RMCD has indicated in their guide that an "online platform" refers to a platform that provides facilities for the sale and purchase of LVG which includes a marketplace operated via website, internet portal or gateway.

The rate of sales tax on LVG is 10% and sales tax is calculated on the sale value of the LVG excluding any tax, duty, fee or other charges such as transportation, insurance or other costs. Sales tax on LVG is due when the LVG are sold by the seller.

A seller of LVG who has registered with the RMCD is referred to as a registered seller. A registered seller is required to file the returns online and pay the tax on a quarterly basis to the RMCD.