Duty-Free Islands Will Still Be Taxed Under SST in Malaysia
Malaysia has some duty-free islands where the foreign visitors can indulge in tax-free shopping. However, the SST in Malaysia kick starts on September 1 and is expected to affect specific items based on the orders of the country’s finance minister.
Lim Guan Eng, the Finance Minister of Malaysia said in accordance with the powers he has under the most recent Sales Tax Act that his government will charge sales tax for importing tobacco products & tobacco, malt liquor, beer, spirit, and wine into certain designated areas.
The Sales Tax Act of the country has defined the “designated areas” as Tioman, Langkawi, and Labuan. All these three islands are duty-free. Under the Sales Tax Order 2018, the Malaysian government will impose the sales tax to import anchovy and marble into Langkawi. Sales tax under the same order will be also imposed while importing vehicles from Tioman.
The Frequently Asked Questions (FAQ) on Sales Tax for the Royal Malaysian Customs Department mentions that same tax will be levied on the import of petroleum into the duty-free islands of Tioman, Langkawi, and Labuan.
Sales tax will be also imposed while importing tobacco products and tobacco, malt liquor, beer, and spirit into the Duty-Free Area of Tasik Kenyir.
Sales tax in free zone areas
If imported goods are meant to be consumed or used in the “free zone” areas, sales tax will be levied on them. These “free-zone” areas are known as free industrial zone and commercial zone.
These goods include the following:
- Manufacturing aids
- Air conditioning equipment
- Chemicals and explosives
- Petroleum products and petroleum
- Vehicles and their spare parts
- Pollution control equipment
- Office furniture or equipment
Service tax in duty-free islands or special areas
Lim also instructed through his authorities within the scope of Service Tax Act 2018 that the new service tax will be levied under 5 kinds of services although it involved the special areas or duty-free islands.
The Service Tax Act also defines the meaning of special areas. They have been defined as any licensed manufacturing warehouses and licensed warehouses in the free zone.
The same order also stated that government will charge service tax for staying in the lodging house, homestay, service apartments, and operators of hotels or any other similar places.
However, there will be no service tax imposed on accommodation offered to employees by employers, welfare bodies operating for non-commercial reasons or registered religious bodies. It will be also not levied by the Malaysian federal government, local authorities and statutory body, and private but registered higher educational institutes for welfare, training or educational purposes.
There will be service tax levied when caterers provide food & beverage services, coffee houses, canteen, snack bars, bars, restaurants, food courts, caterers and similar places. The exception is only for canteens operated by a religious body or in educational institutions.
Some other key services, which will be taxable, include telecommunication services or services for passenger air transport between special areas and duty-free islands as well as from special areas to duty-free islands or vice-versa.