Sales Tax: Frequent Asked Questions (FAQ)
1. What is Sales Tax?
- Sales Tax is an indirect tax levied on certain imported and locally manufactured goods. It is levied only once (single stage)
2. When is Sales Tax levied?
- Locally manufactured goods –at the time goods are sold /used by himself/disposed of otherwise than by sale.(gifts etc)
- Imported goods – at the time the goods are cleared from Customs control at the place of importation/Customs warehouse.
3. What is the rate of Sales Tax levied?
- The Sales tax rate is 10% under Sales Tax (Rates of Tax No.1) Order 2008) except :
- Goods under Schedule 1 Sales Tax (Rates of Tax No.2) Order 2008 – subject to rate of 5%
- Goods under Schedule 2 Sales Tax (Rates of Tax No.2) Order 2008 – subject to rate of 20%
- Goods under Schedule 3 (Sales Tax (Rates of Tax No.2) Order 2008 – specific rate applicable
4. Do all manufacturers need to be licensed?
All local manufacturers have to apply for the Sales Tax License (Section 2 Sales Tax Act 1972) except:
- Manufacturers of goods exempted under Schedule A ,Sales Tax (Exemption) Order 2008.
- Taxable goods manufacturer whose
- Yearly sales turnover less than RM100,000.00 – Schedule A, Sales Tax (Exemption from Licensing) Order 1997. However manufacturer has to make a prior application to be exempted from Sales Tax license –or for a Certificate of Exemption
- Annual workmanship charges less than RM20,000.00 – Schedule A Sales Tax (Exemption from Licensing) Order 1997. However manufacturer has to make a prior application to be exempted from Sales Tax license –or for a Certificate of Exemption
- Manufacturing activities as listed in Schedule B Sales Tax (Exemption from Licensing) Order 1997.
- Manufacturing activities which are not regarded as manufacturing as defined under section 2 Sales Tax Act 1972 (Example as per link 6.44 PTCJ Bil. 2 – 8)
- Manufacturing activities carried out in Labuan, Langkawi, Tioman, Free Zones and Licensed Manufacturing Warehouse.
5. How to apply for a Sales Tax License?
Application may be made:
- Online (e-BLESS)
6. When is the Sales Tax License in force?
- The effective date as stated in the license
7. When do I have to apply for an amendment of the license?
- If any of the following change takes place:
- Alteration of name of company or status of a company
- Changes of operating address
- Opening/Closing of branch
- Change or additional taxable goods manufactured
- Change of partnership
- When directed to do so by Director General of Customs
8. How to amend a Sales Tax License?
- Apply with a letter attaching original license /a police report (where license is lost or destroyed) to the Customs Office which issued the license.
- Amended license will be returned to licensee.
9. When do I apply to cancel license?
- Licensee has to apply for cancelation of license when one of the following occurs:
- Company ceases manufacturing or is dissolved
- Licensed manufacturer changes status to Certificate Of Exemption From Licensing – Yearly sales turnover is less than RM100,000.00 or yearly value of Workmanship is less than RM20,000.00
- Change in ownership of company/business
- Owner dies and business ceases operation
- Company is leased – license has to be cancelled and new license to be issued on name of lessor
- Licensed manufacturer dies and business is taken over by new person
- Licensed manufacturer is placed under receivership / liquidator / trustee
- License cancelled on instructions of Director General of Customs
10. How to cancel Sales Tax License?
- Apply with letter submitting original license/ police report (where license lost or destroyed) to Customs office which issued license
- Notification letter will be issue to company / business regarding cancellation date
11. Are activities like assembling/installing parts of machines to complete it subject to licensing ?
Activities like assembly/installation parts of machines to make a complete product is considered manufacturing. However simple manufacturing like screwing two or three parts together does not fullfill the definition of manufacturing provided
- the machine is complete and no additional tools are required in the assembly
- Assembly is carried out easily and quickly
- goods are not bought / imported by licensee
12. Is cutting of alluminium and glass into certain sizes subject to sales tax?
- Cutting alluminium and glass into certain sizes is not subject to Sales Tax because no new product is produced (refer definition of Manufacturing)
13. Goods manufactured by me are for export, do I have to submit a Sales Tax return?
- Sales Tax return (CJPI) has to be furnished and the value of exported sales declared in column three (export sales) of the Sales Tax Return
14. How to buy raw material which are to be used in manufacturing free from tax?
- Manufacturer / Trader may purchase raw material used in manufacturing free of Sales Tax by using:
- credit system
15. What type of material qualify for this facilities (to be free from Sales Tax?)
- Raw materials/components to be used directly in the manufacturing process
- Packing materials and labels
- Manufacturing Aids
16. Can I (Sales Tax licensee) deliver goods to a third person to undertake a part or the complete manufacturing process on my goods.
Yes. Sub-contracting can be done to a third person as categorized below :
- Sub contract to another licensed manufacturer –CJ5B facility
- Sub contract to another non licensed manufacturer- Exemption item 93, Schedule B, ST(E)O 2008
- Sub contract to LMW/FIZ–Exemption item 89, Schedule B, ST(E) O 2008
17. Completed manufactured good is not taxable, is the manufacturer entitled to raw material / component /packaging used in manufacturing free from tax.
- Yes, on condition the manufactured goods are meant for export, Schedule C, item 12, ST(E)O 2008.
18. Can licensed manufacturer using CJ5 facilities also apply for Credit System facility (CJ10)
- Yes, on condition that approved CJ5 facilities are for different raw material than for credit system approved.
19. I am in a trading business. Can I get tax exemption to buy finished goods from a local company for export.
- Tax exemption can be obtained under item 71, Schedule B, Sales Tax (Exemption) Order 2008
20. My company is paid workmanship charges for sub-contract work carried out. Do I have to apply for a license and pay sales tax on value of the goods?
- Yes, if the workmanship charges for 12 months exceed RM20,000.00 (Schedule A, Sales Tax (Exemption from Licensing) Order 1997
21. If the quantity approved under CJ(P)2 and CJ5 facilities has been used, can I apply for additional quantity?
- Yes, Application can be made for additional quantity.
22. Can a trading company purchase completed goods from licensed manufacturer and sell to another trading company?
- Yes, However licensed manufacturer will charge sales tax at the time of sale
- Exemption of tax is only given to trading company which exports goods purchased from licensed manufacturer using form CJ(P)2 – Item 71, Schedule B, Sales Tax (Exemption) Order 2008