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).
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.
Sales tax on imported low value goods
Effective 1 April 2023, low value goods (LVG), i.e. goods which have a sale value of not more than a certain value (i.e. RM500), sold on an online platform and imported into Malaysia using any mode of transport will be subject to sales tax at the point of sale.
The details on the imposition of sales tax on LVG that have been communicated are as follows:
Tax rate: A flat rate of 10%
Registration: Both local and foreign sellers of LVG on any online marketplace as well as operators of online platform are required to register for sales tax and charge sales tax on LVG if their total sales value for a 12-month period exceeds the registration threshold of RM500,000. Registration can start from 1 January 2023.
Calculation of sales tax: The sale value used in the calculation of sales tax shall exclude any tax, fee or other charges imposed on the imported LVG.
Sales tax due: Sales tax on LVG is due when the LVG are sold by the seller.
Taxable period and furnishing of return: The taxable period for a registered LVG seller is 3 months and the returns must be furnished to Customs by the last day of the month following the end of the taxable period.
Customs control: Customs can withhold the LVG if it appears that sales tax has not been charged, insufficiently charged or paid. The LVG can only be released after the correct amount of sales tax on the LVG has been paid.
- Transitional: LVG which are purchased before the effective date of imposition of sales tax on LVG are not subject to sales tax even if the LVG are delivered to Malaysia after the effective date.
The imposition of sales tax on LVG, which was supposed to be effective on 1 April 2023, has been postponed to 1 January 2024.
Goods exempted
All goods manufactured for export are exempted from sales tax. Taxable goods exported are exempted from sales tax. Other goods which are specifically exempted include:
- Live animals, fish, seafood and certain essential food items including meat, milk, eggs, vegetables, fruits, bread.
- Books, magazines, newspapers, journals and periodicals.
- Bicycles including certain parts and accessories.
- Naturally occurring mineral substances, chemicals, etc.
- Pharmaceutical products such as medicine, medical cream, cough syrup, bandage, medicaments containing multivitamin & minerals, etc
- Fertilisers (animal origin or chemical) and insecticides.
- Articles of goldsmith such as gold or platinum jewellery, silver tableware, etc.
A complete list of goods exempted from sales tax can be found in the Sales Tax (Goods Exempted from Tax) Order 2018.
Tax-free raw materials
In order to maintain the single-stage concept, there are facilities available to allow for inputs (raw materials and components) to be imported or acquired free of sales tax by a registered manufacturer for use in the manufacturing process of taxable goods.
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%
Exemptions
1. 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.
2. Schedule A Exemption
These are exemptions for specific persons or industries. Examples include goods imported temporarily, ships spares, small value relief for personal items and duty free items. It can also include goods imported or locally manufactured for use in the petroleum upstream industry and trade facilitation measures, such as the purchase of goods for export. Some industries specifically approved by the Malaysian Investment Development Authority (MIDA) may also obtain exemption on fixed assets for use in approved activities.
3. Schedule B Exemption
These exemptions are given to manufacturers of specific goods such as price controlled goods, pharmaceutical products, milk products and exempt goods for export. Manufacturers of such goods would not need to be registered for sales tax to avail of the exemption.
4. Schedule C Exemption
Schedule C exemptions are generally for registered manufacturers or their agents to acquire goods free from sales tax on the basis that such goods will be used as inputs for the manufacture of taxable goods.
5. Carbon Capture and Storage
Refer to “Tax Incentives” chapter.
Refer to “Other duties” chapter for the following:
a. Nicotine Replacement Therapy (NRT)
b. Individually owned taxis and hired cars
c. Studio and filming production equipment
d. Electric vehicles
e. Manufacturing Aids
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