Malaysia Sales Tax 2018
Following the announcement of the re-introduction of Sales and Services Tax (“SST”) (that will kick start on 1 September 2018), the Royal Malaysian Customs Department (“RMCD”) has recently announced the implementation framework of SST as well as a detailed FAQs to arm Malaysians with sufficient knowledge of the new tax regime before SST commence.
Sales Tax Framework
The new Sales tax will be levied on taxable goods that are imported into, or manufactured in, Malaysia. The proposed sales tax will be 5% and 10%, or a specific rate for petroleum. Goods are taxable unless they are specifically listed on the sales tax exemption list.
According to the recent RMCD Guidance, a general exemption under the proposed Sales Tax (Persons Exempted From Sales Tax) Order 2018 will substitute the former sales tax exemption process (applications through the Forms CJ5, CJ5A, and CJ5B) for raw materials and components.
While this newly introduced regime will minimize the compliance burdens by manufacturers (relating to the filing of the exemption application forms), it could lead to more RMCD audits as to ensure registered manufacturers have properly used the general exemption.
1. The taxable goods are as follows:
Taxable goods that are manufactured in or imported into, Malaysia by a tax person are subject to sales tax.
2. Exempted Goods
Under the new framework, food items, chemicals, pharmaceutical goods, medicine, iron, steel, as well as machinery and plant would not be subject to sales tax.
3. Exempted Manufacturing Activities
Tailoring, jewellery-making, opticians’ services and engravings are the exempted manufacturing activities.
4. Exempted Persons
- Federal and State governments
- Ruler of States
- Local Authorities
- Inland clearance depots
- Duty-free shops
- Manufacturers of certain non-taxable goods
- Registered manufacturers acquiring raw materials, components and packaging used to manufacture taxable goods.
5. Registration and Threshold
Manufacturer/person who produces taxable goods with the annual turnover exceeds the threshold of MYR500,000. SST Registration can be done online through the RMCD’s MySST system.
On top of that, the customs authorities will automatically register eligible manufacturers (manufacturers that meet the required registration criteria) where manufacturer will be notified and are required to charge tax as from 1 September 2018. For any business/person who is liable to register but is not automatically registered by 1 September 2018, he or she must apply for registration within 30 days from 1 September 2018.
6. Filing of Returns
The filing of the sales tax returns can be done either manually or via the online MySST portal. The filing of returns must be done on a bi-monthly basis.
7. Invoicing Requirements
According to the new tax regime, it is a mandatory requirement that registered manufacturers to issues invoices with relevant prescribed particulars.
What are the Differences Between the Old Sales Tax Act and the New Sales Tax Model?
1. Higher registration threshold
Under the sales tax regime, a higher registration threshold is introduced and that has excluded small industries from the new tax regime. Unlike the former sales tax regime, businesses that do not meet the annual turnover thresholds can now opt for voluntary registration regime.
2. Reduced late payment penalties
A 40% late payment penalty of tax due will be imposed instead of the previous 50%. In addition, under the new tax regime, the maximum penalty would be reached within 90 days instead of the 150 days.
3. New list of exemptions
The list of exemptions has undergone some changes if compared with previous exemption list.
1. Final GST Audit
RMCD has cleared the air that it will conduct Goods and Services Tax (“GST”) audits for closure purposes from 1 September 2018 after the SST commence.
2. Import of goods or sale that falls within the scope of sales tax
The sales of goods that are transferred from the supplier’s warehouse before 1 September 2018 are subject to GST. However, goods that are transferred on or after 1 September are subject to sales tax.
For cases of advance billing (invoice issued or payment received) before 1 September 2018, businesses are required to assess the advance billings and prepayments decide if any portion of the sales would be subject to sales tax.
3. Subcontracting work that falls within the scope of sales tax
Subcontracting services that are performed before 1 September 2018 are subject to GST while subcontracting services performed on or after 1 September will be charged according to the sales tax regime. For cases of advance billing (invoice issued or payment received) before 1 September 2018, businesses are required to assess the advance billings and prepayments decide if any portion of the sales would be subject to sales tax.