Types of Indirect Tax in Malaysia

1. SALES TAX

a. Sales tax is a tax charged and levied:-

on taxable goods manufactured in Malaysia by a taxable person and sold, used or disposed by him;
on taxable goods imported into Malaysia.

b. Sales tax is not charged on goods listed under Proposed Sales Tax (Goods Exempted From Sales Tax) Order. Certain manufacturing activities are exempted by Minister of Finance through Proposed Sales Tax (Exemption from Registration) Order.

c. Taxable Person
Taxable person is a person who manufactures taxable goods and is:-

liable to be registered
a. Reached sales threshold (Mandatory registered)

Manufacturer — RM 500,000.00
Sub-contractor — RM 500,000.00

d. Bimonthly submission

2. SERVICE TAX

Ref.:Service Tax – MySST
a. Service tax is charged:-

taxable services;
provided in Malaysia
by a registered person carrying on his business

b. Service tax is not chargeable:-

imported services

c. Threshold:-

Any person providing taxable services liable to be registered if the total amount of taxable services (refer to First Schedule, Service Tax Regulation 2018) provided by him in 12 months exceed threshold.

d. Rate of tax:-
Fixed at a rate of 6%., Provision of credit card or charge card services at specific rate.

3. SALES TAX EXEMPTION

a. Exemption Under Schedule A, Sales Tax (Goods Exempted From Tax) Order 2018
Goods or class of goods that are exempted from sales tax are listed in the Schedule A, Sales Tax (Goods Exempted From Tax) Order 2018.

b. Exemption Under Schedule A, B and C, Sales Tax (Persons Exempted From Payment of Tax) Order 2018:-

Schedule A of the Order provides the list of persons or class of persons exempted from payment of sales tax. e.g. Ruler of States, Federal or State Government Department, Local Authority, Inland Clearance Depot and Duty Free Shop
Schedule B provide sales tax exemption to a manufacturer of specific exempted goods, to acquire raw materials, components and packaging materials used in the manufacture of exempted goods.
Schedule C provides exemption of sales tax to registered manufacturer on the acquisition of raw materials, components and packaging materials to be used in manufacturing of taxable goods.

4. SERVICE TAX EXEMPTION

Ref: SERVICE TAX AMENDMENTS 2019

The exemption is applicable for service tax registered person in Group G who acquires taxable services under Group G item (a), (b), (c), (d), (e), (f), (g), (h) and (i) from another service tax registered person in Group G.

This exemption is also applicable for service tax registered person in item 8 of Group I who acquires taxable services under item 8 of Group I (advertising services) from another service tax registered person in item 8 of Group I.

5. IMPORT DUTY

Ref: 2022/2023 Malaysian Tax Booklet

Rates of duties
Import duties are levied on goods that are subject to import duties and imported into the country. Import duties are generally levied on an ad valorem basis but may also be imposed on a specific basis.

The ad valorem rates of import duties defined in terms of a fixed percentage of value ranging from 0% to 60%. Raw materials, machinery, essential foodstuffs and pharmaceutical products are generally non-dutiable or subject to duties at lower rates.

6. SPECIAL AREA

Ref: GUIDE ON – SPECIAL AREA (SA)

Special Areas (SA) means:

a) any Free Zone (FZ) under subsection 2(1) of the Free Zones Act 1990;
b) any Licensed Warehouse (LW) under section 65 of the Customs Act 1967;
c) any Licensed Manufacturing Warehouse (LMW) under section 65A of the Customs Act 1967; and
d) Joint Development Area (JDA) under section 2 of the Malaysia–Thailand Joint Authority Act 1990.

No sales tax is chargeable on any taxable goods sold or disposed of other than by sales in SA.

No sales tax is chargeable on any taxable goods imported from a place outside Malaysia (Overseas) into SA except for the taxable goods prescribed in Sales Tax (Imposition of Sales Tax in respect of Special Area) Order 2018.

7. LICENSE MANUFACTURING WAREHOUSE (LMW)

Ref: 2022/2023 Malaysian Tax Booklet

Licensed Manufacturing Warehouse established under the provision of section 65/65A of the Customs Act 1967. An LMW is a manufacturing unit (factory) granted to any person for warehousing and manufacturing approved products on the same premise. It is primarily intended to cater for export oriented industries.

Customs duty exemption is given to all raw materials and components used directly in the manufacturing process of approved produce from the initial stage of manufacturing until the finished product is finally packed ready for export.

8. FREE ZONE

Ref: Other Duties

A free zone is deemed to be a place outside Malaysia for customs purposes.

Subject to certain exclusions, goods and services can be brought into, produced or provided in a free zone without payment of customs duty or excise duty.

There are two types of Free Zones in Malaysia:
(a) Free Industrial Zone (FIZ); and
(b) Free Commercial Zone (FCZ). Manufacturing activities are allowed to be conducted in FIZ while trade activities are allowed to be conducted in FCZ.

9. FREE TRADE AGREEMENTS

Ref: Other Duties

Malaysia has concluded several regional and bilateral free trade agreements and several more are still under negotiation. One of the key features of free trade agreements is the preferential tariff treatment accorded to member countries.

The preferential tariff treatment and the rules of origin may vary from one free trade agreement to another.

10. IMPORT DUTY EXEMPTION

Ref: GUIDELINES AND PROCEDURES FOR A MANUFACTURER IN THE PRINCIPAL CUSTOMS AREA (PCA) TO CLAIM EXEMPTION FOR

Manufacturers in Principal Customs Area (PCA), companies engaged in hotel business, haulage operators and aerospace maintenance, repair and overhaul (MRO) companies can be given exemption on import duty and/or sales tax n import duty and/or sales tax on machinery, equipment, spare parts, prime movers, container trailers, specialised tools, components, materials or specialised consumables goods.

Eligible companies should apply to MIDA for the MIDA’s Confirmation Letter [Surat Pengesahan MIDA (SPM)] and subsequently submit to Customs