Ibrahim Sameer (MBA - Specialized in Finance, B.Com Specialized in Accounting & Marketing)

Introduction Indirect taxes include sales tax, service tax, custom and excise duties. The Government of Malaysia is in the process of integrating and restructuring the existing sales and service taxes to consolidate both, better known as Goods and Services Tax (GST).

Sales Tax Definition Sales tax was first introduced on 29 February, 1972. Sales tax as a single stage ad valorem tax imposed on all goods manufactured in or imported into Malaysia unless specifically be exempted by the Finance Minister of Malaysia.

Sales Tax Not Applicable Area Sales tax is not applicable in Labuan, Langkawi Island, free zones and the joint development area.

Sales Tax Criterion

Sales Tax Rates

Taxable Goods & Non Taxable Goods Imported and manufactured goods in Malaysia (except for Labuan, Langkawi Island and Tioman Island) are subject to the Sales Tax, unless specifically exempted by the Finance Minister of Malaysia. Petroleum and the products of petroleum are also subject to Sales Tax in accordance with the Third Schedule, Sales Tax (Rate of Tax) Order 1997.

Taxable Person

When Sales Tax is Charged & Levied? Taxable Goods Manufactured in Malaysia Imported Goods

Taxable Goods Manufactured in Malaysia A sales tax is charged and levied when taxable goods manufactured in Malaysia, sold, used or disposed off by the taxable person, otherwise than by sale or disposal to an authorised licensed manufacturer.

Taxable Goods Manufactured in Malaysia

Imported Goods A sales tax is due and payable by the importer at the time the goods are cleared from customs control. It will be calculated and shown on the import declaration document and will be collected together with other duties applicable to imports.

Imported Goods In the case of imported goods, the sales value is the total amount of:

Imported Goods

When Will Sales Tax be Paid? Sales tax must be paid by the licensed manufacturer within 28 days after the end of the taxable period, (which is two calendar months) regardless of whether or not the tax has been collected from the customer.

When Will Sales Tax be Paid?

Penalty The rate of penalty (for every 30-days period) is 10%. Apart from that, if within 30 days from the exact date of sales tax is still not settled, the penalty will be increased up to 10% till the full payment. The maximum penalty rate is up to 50%.

Sales Recoverable Formula Sales tax recoverable = Sales tax paid (Client paid amount x sales tax paid / total invoice value)

Circumstances Where Debts is Regarded as Irrecoverable For sales tax purpose, a debt is irrecoverable when the customer: Debtors declared bankrupt under the Bankruptcy Act 1967. The debtor has not paid the whole or any part of the payment in respect of the taxable goods six months after the sales tax is paid.

Circumstances Where Debts is Regarded as Irrecoverable Debtor has voluntarily wound up or has been ordered by the court to wind up. The whole or part of the sales has been provided or written off as a bad debt in the profit and loss account of the taxable person.

Service Tax A service tax is another type of indirect tax imposed on customers who consume food or services in places such as restaurants, hotels or engaged in professional services such as legal firms and audit firms. It is regulated under the Service Tax Act 1975 since 1 March 1975.

Service Tax This act is not applicable in exempted areas such as Langkawi Island, Free Zone, Tioman Island and Joint Development Area.

Tax Rate Effective from year of assessment 2011, the rate of a service tax is 6% of value and service charged. Prior to that service tax rate was 5%.

Scope of Service Tax The scope of service tax can be divided into two, the taxable person and the taxable service as mentioned in the Second Schedule of the Service Tax Regulations 1975.

Taxable Person & Taxable Service Based on the Second Schedule of the Service Tax Regulations 1975, there are various categories of taxable person and taxable services. This schedule is divided into nine groups.

Taxable Person & Taxable Service

Voluntary Licensing Companies may be able to apply for service tax licence voluntarily in the following situations: (i) Provide taxable service not exceeding threshold; and (ii) Company plans to run the business and provide taxable service.

Annual Sales Turnover (Threshold Limit) The imposition of service tax is subject to a specific threshold based on an annual turnover ranging from RM150,000 to RM500,000. A complete list of taxable persons and the threshold for taxable services is prescribed in the Second Schedule of the Service Tax Regulations, 1975, a summary of which is as follows:

Annual Sales Turnover (Threshold Limit)

When to Charge Service Tax? A service tax is charged when taxable service is provided to customers by taxable person. Once invoice is prepared or payment is received by a company, service tax will be charged. In line with this, the customer will be required to pay the service tax. The taxable person is held responsible to collect the tax on behalf of the government.

Q & A