Sales Tax

Effective date and 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.

The term “manufacture” in relation to goods other than petroleum, means 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 term “manufacture” means any process of separation, purification, refining, conversion and blending.

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

 

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 as follows:

Class of goods

Rate

Fruit juices, certain foodstuff, building materials, personal computers, telephone and watches

5%

All other goods, except petroleum subject to specific rates and goods not specifically exempted

10%

 

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.

 

Goods exempted

All goods manufactured for export 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.

 

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.

 

Exemption from registration

Certain manufacturing activities are exempted from the registration requirement. They include the 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.

 

Voluntary registration

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. The DG of Customs may approve the registration to be effective from a date he determines and subject to conditions he deems fit.

 

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.

 

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.

 

Approved Major Exporter Scheme

An Approved Major Exporter Scheme will be introduced  to overcome challenges with the existing drawback and specific exemption facility for certain traders and manufacturers of exempted goods. The scheme is aimed at such traders and manufacturers who export at least 80% of their annual sales and  allows full sales tax exemption on their importation or purchase of goods (w.e.f 1 July 2020).

 

Sales tax deduction

With effect from 1 January 2019, registered manufacturers are able to claim 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%

 

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.

 


This publication is a quick reference guide outlining Malaysian tax information which is based on taxation laws and current practices. This booklet also incorporates in coloured italics the 2020 Malaysian Budget proposals announced on 11 October 2019 and the Finance Bill 2019. These proposals will not become law until their enactment and may be amended in the course of their passage through Parliament.

This booklet is intended to provide a general guide to the subject matter and should not be regarded as a basis for ascertaining the liability to tax in specific circumstances. No responsibility for loss to any person acting or refraining from acting as a result of any material in this publication can be accepted by PricewaterhouseCoopers. Readers should not act on the basis of this publication without seeking professional advice.

 

Published by
PricewaterhouseCoopers Taxation Services Sdn Bhd (464731-M)
Level 10, 1 Sentral, Jalan Rakyat, Kuala Lumpur Sentral,
P.O. Box 10192, 50706 Kuala Lumpur, Malaysia
Tel: 03-21731188 Fax: 03-21731288


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