LICENSING

Any person engaged in the manufacture of taxable goods is required to apply for a licence.

Applications for Licence

Applications for licence can be made in Form JKED No. 1 to the senior officer of sales tax in charge of the district in which the applicant's principal place of business is located.

A licence will be issued in Form S.T. No. 2.

The sales tax officer may require an applicant to furnish a Bank Guarantee before a licence is issued. Applications for licences are not subjected to any fees.

Persons Not Required to be Licensed

Categories of persons not required to be licensed under the Sales Tax Act 1972 are as follows:

• any person who manufactures solely any of the goods exempted as listed in Schedule A of the Sales Tax (Exemption) Order 1980;
• manufacturers of taxable goods whose annual sale turnover or sales value does not exceed RM100,000. However such manufacturers need to apply for a Certificate of Exemption;
• manufacturers as specified in Schedule A of the Sales Tax (Exemption From Licencing) Order 1997, as below :

  • a manufacturer of taxable goods, not being a "contractor" as defined in paragraph (b) below, who satisfies the senior officer of sales tax that the sale value of taxable goods manufactured by him, and which he has sold or otherwise disposed of during the preceding twelve months did not exceed RM100,000 and that the sale value of goods likely to be manufactured and sold or otherwise disposed of by him during the next twelve months is not expected to exceed that sum.

  • A manufacturer of taxable goods, being a "contractor", i.e. a person who performs work on taxable materials wholly supplied by another person, who satisfies the senior officer of sales tax that the total amount charged for such work done by him during the preceding twelve months did not exceed RM20,000 and that the total charges for work to be done by him in manufacturing taxable goods wholly from taxable materials supplied by other persons during the ensuing twelve months are not likely to exceed that sum.

• manufacturers of taxable goods whose manufacturing operations are exempted from licensing as specified in Schedule B of the Sales Tax (Exemption From Licensing) Order 1997,as below :

  • The developing and printing of photographs and the production of film slides.

  • The engraving of articles with the name of the recipient, his sports record or other circumstances under which the article was donated or awarded.

  • The incorporation of goods into buildings.

  • the manufacture of ready-mixed concrete.

  • The preparation of meals.

  • The preparation of tarred metal, tarred screenings, and hot-mixed preparations of bitumen and metal for roadmaking.

  • The production of copies of documents by the photo-copy or similar copying process.

  • The repacking of bulk goods into smaller packages by a person other than a licensed manufacturer.

  • The repair of second-hand or used goods.

  • The testing of eyesight, the prescription of suitable lenses and the fitting of such lenses into frames.

  • The following operations when performed by a person other than a licensed manufacturer :

    1. The varnishing and/or polishing of finished pieces of furniture.

    2. The fitting of glass tops and/or glass doors to pieces of furniture otherwise complete.

  • The reduction of size and/or changing of the shape of taxable materials without changing the nature of such materials, provided :

    1. That the sizing and/or shaping is not part of the normal process in the manufacture of a separate article, and

    2. that in any dispute as to whether the process performed constitutes a manufacturing operation for the purposes of the Sales Tax Act, the decision of the Director General of Customs and Excise shall be final.

  • The rendering of personal tailoring service but excluding the manufacturing of garments and other textile articles on the basis of bulk and not personalised production by a firm or company engaged in the business of manufacturing garments and other textile articles.

  • The printing of logo only on ready-made T-shirts supplied by another person.

  • The colouring of cloth supplied by another person without changing the size or shape of the said cloth.

  • The manufacture of batik fabrics using traditional techniques of manual block printing, manual screen printing and/or hand drawing/painting and the articles thereof.

  • The installation of air conditioners in motor vehicles.

  • The manufacture of jewellery and goldsmiths wares.

  • The extraction of gold from mineral ores.

  • The recovery of gold from jewellery and/or the refining of gold.

TAX / TAXABLE GOODS

Rates of Sales Tax

Sales Tax is an ad valorem tax and current rates are as follows:-

• Rate on all goods (excluding the two below) - 10%

• Rate on cigarettes, liquor and alcoholic drinks - 15%

• Rate on fruits, certain foodstuff and building materials - 5%

Taxable Goods

All goods manufactured in Malaysia (except Labuan, Langkawi and Licenced Manufacturing Warehouse licenced under Section 65 and 65A of the Customs Act 1967) or imported are taxable unless they are specifically exempted by Order of the Minister of Finance.

Goods Exempted

Goods exempted from sales tax are not taxable goods and are listed under Schedule A of the Sales Tax (Exemption) Order 1980.

When Sales Tax is Levied and Charged

• On goods imported

  Tax on goods imported is assessed and paid at the time the goods are cleared from Customs control. It will be calculated and shown on the import declaration together with the customs duties to be paid (if any).

• On locally manufactured goods

  Tax on goods manufactured in the country is to be charged and levied by the licensed manufacturer at the time goods are sold or disposed of otherwise than by sale. Sales tax is also charged on any disposal of goods by a licensed manufacturer otherwise than by sale or first used otherwise than as materials in the manufacture of taxable goods. Disposal includes inter alia, self use, to destroy, to give away, to donate and to supply free of charge, etc.

Sales Value

Sales value is the value on which tax is calculated and assessed. In the case of imported goods the sales value is the sum of the following:

• The value of the goods for the purpose of customs duty; and

• The amount of customs duty payable on the goods.

In the case of domestically manufactured goods:

• Sales value is the price for which the goods are sold to an independent person in the ordinary course of business.

• If goods are sold to a person other than an independent person, the sales value would be the price at which such goods would have been sold if they had been sold in the ordinary course of business to an independent person.

Transactions Regarded As Sale

Generally, a sale takes place when the property or the goods passes from the seller to the purchaser.

In addition to normal sales, the following transactions are regarded as "sales" for sales tax purposes:

• goods on hire purchase or time payment terms

• goods on hire

• goods disposed of on "sale or return" basis

• goods on consignment to a purchaser on terms providing that the seller retains an interest in the goods, or that the goods are delivered under any condition as to future payments

Sales Invoice

Section 17 of the Sales Tax Act 1972 requires the amount of sales tax charged to be shown separately on the customers sales invoice. An invoice which includes both taxable and non-taxable goods sold must clearly indicate the item on which tax is charged.

Sales Tax Return

Section 19 of the Sales Tax Act 1972 requires every licensed manufacturer to furnish returns to the Customs Department. The returns are to be submitted in Form S.T. No. 3 within twenty-eight days after the end of each taxable period.

The returns are to show the aggregate amount of sales value of all taxable goods sold during the period covered by the return.

When Sales Tax is Payable

Section 22 of the Sales Tax Act 1972 states that sales tax charged by the licensed manufacturer must be paid to the Customs Department within twenty-eight days after the end of each taxable period.

Payment of sales tax may be made by:

• Cash

• Postal or money order

• Cheque or bank draft

Keeping of Accounts and Records

Section 18 of the Sales Tax Act 1972 requires a licensed manufacturer to keep full and true records written up to date of all business transactions in either Bahasa Malaysia or English. The records shall be preserved for a period of six years from the latest date to which such records relate.

An audit certificate signed by a qualified accountant may be required to be submitted annually in relation to records of:

• raw materials purchased, used and balance in stock (in quantity and value)

• goods manufactured, sold or otherwise disposed of

• balance in stock (in quantity and value)

• total tax paid for the year on the goods

Liquidators and Receivers

A liquidator or a person appointed as receiver, in respect of a licensed manufacturer must inform the Director General of Customs within fourteen days of his appointment and before disposing of any of the assets must set aside a sum sufficient to pay for any sales tax payable by the licensee.

Failure to do so results in the liquidator or receiver becoming personally liable for any sales tax that is payable or which becomes payable after his appointment.

Goods on Export

All goods exported by a licensed manufacturer are exempted from payment of sales tax. Proof of export is necessary by way of customs export declaration (Customs No. 2 Form) and the licensed manufacturer's export sales invoices.

FACILITIES

• Ring System

Applications to import or purchase raw materials, components or packaging materials from another licensed manufacturer free from sales tax is to be made in Form S.T. No. 5 to the Sales Tax Office where the applicant is licensed. Records on those purchases are to be maintained.

• Refund System

A licensed manufacturer can obtain raw materials / components and packaging materials free of sales tax from a vendor in which the sales tax on those goods have been paid by such vendor. Such vendor may apply for a refund of the sales tax paid, in Form JKED No. 2.

• Credit System

This system is to assist licensed manufacturers who are not able to use the facility of the ring system or the refund system. Application is to be made in Form S.T. No.10. Credits are given to licensed manufacturers for tax paid on raw materials, components or packaging materials used in manufacturing of taxable goods. The deduction depends on the categories and rates of sales tax of the goods purchased as follows :

	Category	Sales Tax Deduction
1.	For any taxable goods subject to a 5% rate of sales tax	1/25 of the total value of the goods purchased
2.	For any taxable goods subject to a 10% rate of sales tax	1/13 of the total value of the goods purchased
3.	For any taxable goods subject to a 15% rate of sales tax	1/9 of the total value of the goods purchased

Claims for deduction must be made in the return (Form S.T. No. 3) for that taxable period.

Additional Facilities

• In special circumstances a person can apply to import or acquire taxable goods free from sales tax for the use of a licensed manufacturer who is in possession of a valid Form S.T. No. 5. Such application is to be made in Form S.T. No. 5A.

• Where a licensed manufacturer requires another licensed manufacturer to complete the manufacture of his taxable goods he is allowed to deliver the goods for further manufacture and to acquire them back free of sales tax. An application is to be made in Form S.T. No. 5B.

• Further information on facilities can be obtained from the Sales Tax Office wherein the manufacturer is located.

REFUND/DRAWBACK

A licensed manufacturer or importer can apply for the refund of sales tax that has been paid by reason of error, whether of fact or of law, provided that a claim in respect of any refund is made within one year after the occurrence of over payment.

Subject to certain conditions a licensed manufacturer or importer can claim drawback of the full amount of the sales tax paid in respect of goods which are subsequently exported. Applications to claim drawback has to be made in Form JKED No. 2.

For further information on Sales Tax, please contact:

Internal Taxes Division (Sales Tax Branch),
6th Floor (B Wing), Block 11, Government Offices Complex,
Jalan Duta,
50596 Kuala Lumpur, Malaysia.
Tel: (603) 650 2149
Fax: (603) 651 3104