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Sales Tax - Part 1

Concept Of Tax:
The Sales Tax Act 1972 came into force on 29 February 1972. Sales tax administered in our country is a single-stage tax charged and levied on locally manufactured taxable goods at the manufacturer’s level and as such is often referred to as manufacturers’ tax. The tax is also imposed on taxable goods imported into the Federation Sales tax is imposed on imported goods at the point of entry. In the case of locally manufactured goods, sales tax is charged and levied when such goods are sold or disposed of by the manufacturers.Taxable goods are goods of a class or kind not for the time being exempted from sales tax. Exempt goods are listed in the Schedule A of the Sales Tax (Exemption) Order 1980.

Scope Of Tax:
Sales Tax Act 1972 applies throughout the Federation, excluding the free zones, licensed warehouses, licensed manufacturing warehouses and joint development area. With regard to Langkawi and Labuan, special provisions have been enacted in the Sales Tax Act 1972 to accommodate their free port status.

Basis Of Tax:

Sales tax is levied and charged on all taxable goods imported into or manufactured in Malaysia. In this regard, goods refer to all kinds moveable properties and as such transactions involving immoveable properties fall outside the ambit of the Sales Tax Act 1972.   

Administration Of Tax:

Unlike the Customs Act 1967 and Excise Act 1976, the Sales Tax Act 1972 is enacted for documentary control. Under such system of control, administration of tax relies significantly on the accountability of the taxable person who is duty bound to account the sales tax payable by submitting sales tax returns to the Sales Tax Authorities. Inspection of the taxable persons’ books of account will be conducted subsequent to the acceptance of the sales tax returns to ascertain the taxable person has accounted correctly all sales tax payable by him.

Licencing:
Every person engaging in the manufacturing of taxable goods in the course of business is required to apply to be licensed as a licensed manufacturer. To determine whether a person is subject to such licensing requirement, it is pertinent to ascertain that his operation complies with the definition of ‘manufacturing’ and the product arising from the operation is taxable.

‘Manufacture’ is defined under section 2 of the Sales Tax Act 1972 and means, in relation to goods other than petroleum, the conversion by manual or mechanical means of organic or inorganic materials into a new product by changing the size, shape or nature of such materials and includes the assembly of parts into a piece of machinery or other products, but does not include the installation of machinery or equipment for the purpose of construction.

This licensing requirement enables the Sales Tax authorities to identify and bring into the tax net the manufacturers who come under the jurisdiction of the Sales Tax Act 1972. A manufacturer holding a sales tax licence is called licensed manufacturer.

A person who manufactures taxable goods without a sales tax licence shall be guilty of an offence under section 43 of the Sales Tax Act 1972 and liable to imprisonment for a term not exceeding twelve months or to a fine not exceeding five thousand ringgit or to both such fine and imprisonment.


Application For Licence:
The application for a sales tax licence must be made in the prescribed Form JKED No.1. The duly completed Form JKED No.1 together with other relevant document must be submitted to the sales tax office where the applicant’s principal place of business is located. The locations of the sales tax offices as well as the districts served are specified in the Second Schedule of the Sales Tax Regulations 1972.

The documents required to be submitted include the following
:
-    2 copies of form JKED 1
-    2 copies of administrative form
-    2 copies of Memorandum & Articles of Association, Form 24,

Form 44 and Form 49 (for companies incorporated under the Companies Act 1965) or 2 copies of Business Registration  

     Form A or Form B, and Form D
-    2 copies of identity card (Director/sole proprietor/all partners)
-    2 copies of photograph (Director/sole proprietor/all partners)
-    2 copies of location map
-    2 copies of manufacturing flowchart
-    2 copies of the list of raw materials

On being satisfied that a licence is required, the Director General of Customs shall issue the licence. There is no fee prescribed for the issuance of a sales tax licence.

The sales tax licence is in the prescribed Form CJ No.2 and must be displayed conspicuously at the manufacturer’s principal place of business. If the manufacturer carries on business in several places, such places of business must be included in the sales tax licence and a copy of the licence is to be similarly displayed at each place of business.

Generally, the licensed manufacturer will continue to be licensed until the licence is revoked. The sales tax licence may be revoked for the following reasons:

  •  when the manufacturer ceases to carry on the business of manufacturing taxable goods;
  •  when the manufacturer (company) is dissolved;
  • when the manufacturer (sole proprietor) dies;
  • when there are changes in the partnership.


The power of the Director General of Customs to revoke sales tax licence is provided under section 13A of the Sales Tax Act 1972. Sales tax licence may be revoked under the following circumstances:

  • when the taxable person ceases to carry on business of manufacturing taxable goods, or dies, or being a company is dissolved. In this case, a notice of revocation of the licence specifying the date of revocation shall be served on the taxable person.
  •  When the taxable person contravenes the provisions of sections 17, 17A, 18, 19, subsections (1) and (2) of section 22. Before the said sales tax licence is revoked, a notice shall be served on the taxable person informing him of the proposed revocation and requiring him to make representation on the matter. If the Director General of Customs is satisfied that the sales tax licence should be revoked, a notice of revocation of the licence shall be served on the taxable person.


In other cases, the sales tax licence may need to be amended to accommodate changes that occur in the course of business. It is therefore the duty of the licensed manufacturer to forward the sales tax licence to the Sales Tax authorities for amendment in the following cases:

  • When there is an alteration to the name of a company or business;
  • When there is a change of address in respect of the place of business;
  • When there is opening of new place of business or closing of any place of business;
  • When there is a change or an addition to the commodities manufactured.

Sales Tax - Part 2

Exemption From Licensing:
The Sales Tax Act 1972 provides the Minister the power to exempt certain persons and manufacturing operations from the licensing requirement. Such exemption is granted in the Sales Tax (Exemption from Licensing) Order 1972.

The Schedule A of the Sales Tax (Exemption from Licensing) Order 1972 stipulates that manufacturers with an annual sales turnover of taxable goods not exceeding RM100,000 are exempted from the requirement of applying for a sales tax licence. However, such manufacturers are required to apply for a certificate of exemption from licensing. The application must be made in the prescribed Form C.J. No.6. 2 copies of the duly completed Form C.J. No.6 affirmed by the following officials must be submitted to the Sales Tax office serving the district where the manufactures’ principal places of business are located:

  • One of the Directors or an authorized person (for manufacturer being a company);
  • All partners (for partnership business);
  • The owner (for sole proprietorship business).
    In addition, the manufacturers are required to furnish the following document:
  • Administrative form;
  • 2 copies of M&A, Form 24, Form 44 and Form 49 (for manufacturer being a company);
  • 2 copies of Business Registration (for partnership and sole proprietorship)
  • Local authority business licence;
  • 2 photographs (Manager/Director/all partners/owner);
  • 2 copies of location plan;
  • 2 copies of manufacturing flowchart;
  • 2 copies of the list of raw materials;
  • 2 copies of the list of finished goods;
  • Monthly sales statement;
  • Invoice books/cash sales ( if sales transacted before date of application)
  • 2 copies of identity cards.


The certificate of exemption from licensing is in the prescribed Form C.J. No.7 and valid for period of one year. The holder of a certificate of exemption from licensing is required to submit the application for renewal of such certificate within 14 days of the expiry of the current certificate.

When the sales value of the taxable goods manufactured during any one period of exemption has reached or is about to reach the threshold, it is the duty of the holder of the certificate of exemption from licensing to notify the senior officer of sales tax of such matter. In addition, the holder of the certificate of exemption from licensing is required to surrender the current certificate and submit an application to be licensed.

Being not a taxable person, the holder of the certificate of exemption from licensing is not required to charge sales tax on the sales of taxable goods manufactured by him. However, he is required to pay sales tax on taxable raw materials and components used in the manufacture.

Section 14 of the Sales Tax Act 1972 was amended with effect from 17 October 1997 to allow a person, who is exempted from licensing, to apply to be licensed in order to enjoy the facilities provided under the Sales Tax Act 1972. This provision is especially useful to manufacturers who manufacture taxable goods for export or are engaged in sub-contracting arrangements with licensed manufacturers.

Maintenance Of Records:
Every taxable person is required to issue invoices in respect to transaction relating to the sales of taxable goods. Such invoices shall be prepared in the national language or in English. The amount of sales tax payable is to be stated separately to the value of the taxable goods sold and be recovered by the taxable person from the purchaser.

The Sales Tax Act 1972 also makes provisions for the production of invoices by computer.
 
In addition, it is the duty of every taxable person to maintain full and true records of all transactions involving the sales of taxable goods. Such records or books of accounts must be maintained in Romanised Malay or in English. If records or books of accounts are kept in a language other than in Romanised Malay or in English, the senior officer of sales tax may request a translation be provided at the expense of the taxable person.

Records or books of accounts are to be preserved for a period of six years from the latest date to which such records relate. Failure to comply with such requirement constitutes an offence under section 43 of the Sales Tax Act 1972 and the offender is liable to a fine not exceeding RM5,000 or an imprisonment for a term not exceeding 12 months or to both such imprisonment and fine.

Submission Of Sales Tax Returns:
Sales tax returns are to be submitted according to taxable period which is defined as two calendar months. Such returns, in the prescribed Form JKED 3, must be delivered by a taxable person to the sales tax office within 28 days after the end of each taxable period. The taxable persons shall furnish, among others, the following particulars in the sales tax returns:

  • sales value of all taxable goods sold during the taxable period;
  • value of taxable goods disposed of otherwise than by sales;
  • value of all taxable goods used by him otherwise as raw materials;
  • the amount of sales tax payable.


Every licensed manufacturer is required to submit a sales tax returns whether or not any taxable goods are manufactured, sold, disposed of otherwise than by sales, disposed of otherwise than by use as material in manufacture and whether or not any sales tax is payable for such taxable period.

Sales tax returns may be delivered to the sales tax office personally or by post.

A taxable person who fails to submit sales tax returns within the stipulated period shall be guilty of an offence under section 43 of the Sales Tax Act 1972 and shall be liable to a fine not exceeding RM5,000 or an imprisonment for a term not exceeding 12 months or to both such imprisonment and fine.

Computation Of Tax:

In the case of locally manufactured goods, sales tax is levied on the sales value of the taxable goods. As such, it is pertinent that the determination of sales value complies with the provisions under the Sales Tax Act 1972. In this connection, the Sales Tax (Rules of Valuation) Regulations 2002 specifies the rules for the determination of sales value of locally manufactured goods. Generally, the transaction value of the taxable goods forms the basis of the sales value of such taxable goods.

With regards to taxable goods imported into Malaysia for home consumption, the sales value of the taxable goods represents the sum of the following amounts:

  • the customs value;
  • the amount of customs duty payable;
  • the amount of excise duty payable.

Sales Tax - Part 3

Rate Of Tax

Section 15 of the Sales Tax Act 1972 empowers the Minister to fix, by Order published in the Gazette, the rates of sales tax to be imposed on the taxable goods. Currently, the following Orders which prescribe the various rates of sales tax are in force:

  • The Sales Tax (Rates of Tax No.1) Order 2008;

  • The Sales Tax (Rates of Tax No.2) Order 2008.

The Sales Tax (Rates of Tax No.1) Order 2008 came into force on 1 April 2008. This Order prescribes the rate of sales tax at 10% to be imposed on taxable goods.

The Sales Tax (Rates of Tax No.2) Order 2008 came into force also on 1 April 2008. The said Order has been amended several times to accommodate the changes in the sales tax structure. This Order contains the following schedules:

  • First Schedule     : Goods subject to 5%;

  • Second Schedule : Goods subject to 20%;

  • Third Schedule  : Goods subject to specific rate;


Payment Of Sales Tax:
Sales Tax is imposed on imported and locally manufactured taxable goods. The incidence of tax is provided under section 22 of the Sales Tax Act 1972.

In the case of locally manufactured taxable goods, the sales tax chargeable is due at the time the taxable goods are:

  • Sold;
  • Disposed of otherwise than by sales;
  • First used otherwise than as material in the manufacture of taxable goods.


Such sales tax which falls due during any taxable period is to be paid to the sales tax office within 28 days from the expiration of that taxable period. Such payment may be made by delivering or posting to the sales tax office:

  • Cash;
  •  Poster orders or money orders;
  • Cheques or bank drafts.


Payment, made by post, received after the last date stipulated for such payment is deemed to be received within the stipulated time, provided that such payment has been posted on or before the last stipulated date. Accordingly, penalty for late remittance will not be imposed.
In the event that a licensed manufacturer fails to remit sales tax to the sales tax office within the stipulated time, he shall be guilty of an offence against the Sales Tax Act 1972 and punishable under section 43 of the same Act. In addition, a penalty shall be imposed on the amount of sales tax that remains unpaid after the last stipulated date. The computation of penalty is as follows:

  • A penalty equal to ten percent of the unpaid amount is imposed after the last stipulated date;
  • The rate of penalty is increased by ten percent for every succeeding period of thirty days or

          part thereof to a maximum of fifty percent.


Payment By Instalments:
 Where the licensed manufacturer fails to remit sales tax to the sales tax office, a demand may be made to compel the licensed manufacturer to pay the unpaid amount. In the event that such licensed manufacturer is unable to settle the unpaid amount in a single payment, he may apply to the Director General of Customs who may allow the unpaid sales tax to be paid by instalments on such amounts and on such dates he may determine. In this case, penalty would not be imposed on such amount of sales tax from the date of allowance.

If the licensed manufacturer defaults in payment of any one instalment, a surcharge equivalent to 10% of the outstanding amount will be imposed. In addition the whole outstanding amount and the surcharge shall become due and payable on the date of default in payment.

Deduction Of Sales Tax:
In the course of business, it is not uncommon that discounts on sales value of taxable goods are granted to purchasers subsequent to such sales.  There are also instances where the taxable goods sold are returned by the purchasers. In such cases, the licensed manufacturer may deduct such amount of sales tax paid in respect to the discounts granted and the returned goods from the amount of sales tax accounted for in the return furnished by him, subject to the condition that a credit note has been issued to the purchaser.
In the case of returned goods, the deduction of sales tax may be allowed provided the goods are returned within 3 months from the date of sale on account of wrong quantity, poor or defective quality or un-contracted goods.

In all cases, the credit notes shall show the following particulars:

  • The words “Credit notes” printed clearly;
  • The serial number and the date of issue;
  • The licensed manufacturer’s name and address;
  • The purchaser’s name and address;
  • A sufficient explanation of the circumstances giving rise to the issuance of such credit note and references to the relevant invoice;
  • The description, quantity and amount of the goods;
  •  The value and the amount of sales tax credited.


Facilities Under The Sales Tax Act 1972:
Sales tax in Malaysia is a single-stage tax imposed at the manufactures’ level. In the case of locally manufactured taxable goods, sales tax is levied and charge on the finished goods when such finished goods are sold or disposed of. The raw material or components use in the manufacture of taxable goods are free from sales tax. Raw material/components used in the manufacture include the following:

  • Materials that are physically incorporated into the finished goods;
  • Packaging materials such as boxes, plastic bags etc.


In order to uphold the single-stage tax concept, various facilities are provided under the Sales Tax Act 1972 to allow the licensed manufacturers to acquire taxable raw material and components used in the manufacture of taxable goods free from sales tax.

The existing mechanism to acquire tax-free raw material and components, among others, include the following:

Ring system:

This facility is provided under section 9 of the Sales Tax Act 1972. Under the ring system, the licensed manufacturer may apply to the sales tax office for approval to import or acquire from another licensed manufacturer raw material and components used in the manufacture of taxable goods free from sales tax. The application for such approval must be made in the prescribed Form C.J. No.5. The following particulars are included in the Form C.J. No.5:

  • HS codes;
  • Value of the raw material and components;
  • The name of suppliers;
  • The port of entry.


In addition, the licensed manufacturer is required to furnish the following document to the sales tax office:

  •  A copy of the location plan;
  • a copy of the manufacturing flowchart;
  • a copy of sample signatures;
  • a copy of the list of finished goods;
  • a copy of the list of imported or locally acquired raw material and components;
  • a copy of administrative form CJ5(2);
  • a Photostat copy of the sales tax licence (CJ2)
  • a copy of the input/output ratio.


Generally, the CJ5 is valid for a period of six months or a year. The licensed manufacturer should take note of the following:

  • raw material and components must be imported or purchased within the validity period of the

          approval;

  • the approved quantity should not be exceeded.


As such, a fresh approval is to be obtained upon the expiration of the existing approval or upon exhausting the quantity approved, whichever is the earlier. In the event that the approved quantity has been exceeded, the licensed manufacturer may submit a supplementary application for additional quantity equivalent to the quantity of raw material and component exceeded.

The licensed manufacturer should be reminded of their duty to maintain full and true records relating to the movement of raw material and components imported or purchased under the CJ5 facility.

C.J. 5A:
In practice, there are licensed manufacturers who are not able to import directly, or acquire directly from another licensed manufacturer taxable raw material and components used in manufacture. Importation or acquisition of raw material and components are often transacted through agents appointed by the suppliers. In this connection, subsections (3) and (4) of section 9 were enacted to allow a vendor to import or acquire from another licensed manufacturer raw material and components free from sales tax for supply to a licensed manufacturer.

The vendor is required to furnish an application in the prescribed Form C.J. No.5A in 3 copies to the sales tax office for approval to import or acquire raw material and components free from sales tax for delivery to a licensed manufacturer. To avoid such facility being abused, an authorization from the licensed manufacturer to whom the tax-free raw material and components to be delivered is necessary.

The vendor is required to attach the following document when making application:

  • a copy each of M&A, Form 9, Form 24 and Form 49;
  • a copy of the location plan;
  • a copy of the approved C.J.5 issued to the licensed manufacturer to whom the tax-free raw

          material and components is to be delivered;

  • 2 copies of Lampiran 1D;
  • a copy of sample signatures;
  • purchase orders from the licensed manufacturer to whom the tax-free raw material and components to be delivered.


The vendor approved of the C.J. No.5A facility is required to keep full and true accounts of the movement of raw material and components imported or acquired using such facility.

C.J. NO. 5B:
This facility is provided under subsection (5) of section 9 of the Sales Tax Act 1972 to facilitate those licensed manufacturers who are not able to cope with the excessive demand or those requiring specialized manufacturing operation.

The licensed manufacturer who is approved this facility may send his goods, in the form of raw material/components/work in progress, to another licensed manufacturer for value-added operation and later to acquire back these goods free from sales tax. The re-acquired goods is deemed as being manufactured by the first licensed manufacturer who is then required to levy and charge sales tax when such goods are sold or disposed of.

The licensed manufacturer intending to use this facility is required to submit an application to the sales tax office using the prescribed form C.J. No.5B. The following documents are to be attached:

  • a letter of application;
  • 3 copies of C.J. No. 5B;
  • a copy of the manufacturing flowchart;
  • a copy of the sample signature.


In addition, following documents related to the licensed manufacturer who receives goods for further process are to be furnished:

  • a copy of the location plan;
  • a copy of the sales tax licence (CJ2).

Sales Tax - Part 4

Refund System:

The refund system serves to supplement the usage of the C.J. 5 facility and is provided under section 31 of the Sales Tax Act 1972.

In practice, not all the licensed manufacturers who have been approved the C.J. No. 5 facility import directly or acquire directly from another licensed manufacturer raw material and components for use in manufacture. It is not uncommon that such licensed manufacturers purchase raw material and components free from sales tax using the approved C.J. 5 facility from a vendor who has paid sales tax on such raw material and components at the time of import or purchase from another licensed manufacturer. In this regard, the vendor is entitled to a refund of sales tax paid on such raw material and components. The application for refund must be made in the prescribed form JKED 2 and submitted to the sales tax office together with other relevant supporting documents within a year from the date of the transaction to which the claim relates.

The significance of this refund system has diminished with the introduction of the C.J. No. 5A facility.

Credit System:

Licensed manufacturers who purchase raw material and components from trading companies are not able to benefit from the facility of the ring system or refund system since sales tax has been imputed into the price of such raw material and components. In this connection, section 31A of the Sales Tax Act 1972 was enacted to create the credit system to assist such licensed manufacturers and to uphold the single-stage tax concept.
A licensed manufacturer is required to apply to the sales tax office for approval to use the credit system facility. He is required to furnish the following document in his application:

  • 2 copies of the letter of application;
  • 2 copies of CJ(P)3;
  • 2 copies of Form 24, Form 49 or Form A/D;
  • 2 photocopies of the sales tax licence;
  • 2 copies of the location plan;
  • 2 copies of the authorization and sample signatures;
  • 2 copies of the manufacturing flowchart;
  • 2 copies of input/output ratio;
  • 2 copies of the list o suppliers and addresses;
  • 2 copies of the value of purchases for a period  of 12 months;
  • 2 copies of the value of sales for a period of 12 months.


Once approved, the licensed manufacturer is required to acquire raw material and components from a non-taxable person, normally wholesalers or retailers. Since the price at which such raw material and components were acquired is inclusive of sales tax, such licensed manufacturer is given credit for sales tax paid on such raw material and components. The tax credit due the licensed manufacturer varies, depending on the rates of sales tax imposed on the raw material and components acquired.

The computation of tax credit is as shown below:
Category of raw material/components Sales tax deduction
Subject to 5 per centum rate of sales tax

Subject to 10 per centum rate of sales tax

Subject to 20 per centum rate of sales tax

Subject to 25 per centum rate of sales tax    

4 per centum of the total value of goods purchased

8 per centum of the total value of goods purchased

16 per centum of the total value of goods purchased

20 per centum of the total value of goods purchased


The claim for deduction of the tax credit must be made in the sales ax returns for the taxable period during which the raw material and components were acquired. In the event that the tax credit exceeds the amount of sales tax payable, the balance of the tax credit would be carried forward to the following taxable period and so on until the whole balance of the tax credit has been deducted or the licensed manufacturer ceases to carry on business.

When claiming for deduction of tax credit, the licensed manufacturer should comply with the following conditions:

  • Each sales tax returns shall be accompanied by the Form C.J. No.10 and purchases invoices supporting the claim. The Form C.J. No. 10 contains particulars relating to purchases of raw materials and components as well as computation of tax credit;
  • The purchases invoices supporting the claim must contain certification from the supplier that no claim for refund of sales tax paid on such raw material and components has been made or will be made by him;
  • Where the raw material and components, on which claim for tax credit has previously been allowed, have been disposed of otherwise than in manufacture of the taxable goods, the licensed manufacturer shall notify the sales tax office of such disposal. The whole or any part of the sales tax deducted shall be recovered by the sales tax authorities.


Exemptions:
Section 10 of the Sales Tax Act 1972 provides the Minister the power to exempt. The exemption can be categorized as follows:

  • Specific exemption;
  • Exemption by Order


Specific exemption:

Person or class of persons may apply to the Minister to be exempted from the payment of the whole or any part of the sales tax which would have been payable by such person or class of persons. In this case, application shall be submitted to the Tax Analysis Division of the Ministry of Finance. In granting the exemption, the Minister may subject such person or class of person to such conditions as he may deem fit to impose.

When any person to whom an exemption has been granted fails or ceases to comply with any condition, the person to whom the exemption was granted or any person found in possession of such goods shall be jointly and severally liable to pay the sales tax.


Sales Tax - Part 5

Exemption by Order:

The Minister may by order exempt:

  • Any goods or class of goods from the whole or any part of the sales tax;
  • Any persons or class of persons from the payment of the whole or any part of the sales tax.


Goods or class of goods that are exempted from sales tax are listed in the Schedule A of the Sales Tax (Exemption) Order 1980. The Schedule B of the Order provides the list of persons or class of persons exempted from payment of sales tax and Schedule C extends exemption of sales tax to manufacturers, not being licensed manufacturers, in respect of goods acquired by such manufacturers for use in manufacture of certain products.

The exemption granted under the Schedule B of the Sales Tax (Exemption) Order 1980, among others, include the following:

Item 16

Under this item, all goods exported by licensed manufacturers are exempted from payment of sales tax. Licensed manufacturers are required to maintain the customs export declaration form (Customs No.2) as proof of export.

Item 91

It has become the current commercial practice where manufacturers will concentrate on manufacturing while a marketing arm or trading houses will undertake to market the goods. As such, it is not uncommon that goods manufactured by licensed manufacturers are exported by the marketing arm or trading houses.

To ensure that the locally manufactured goods are competitive in the global market, it is pertinent that sales tax chargeable on the sales of goods by a licensed manufacturer to the marketing arm or trading houses be exempted. In this case, the exemption provided under Item 91 allows the marketing arm or trading house to purchase goods, exempted from sales tax, from a licensed manufacturer.

The marketing arm or trading houses are required to apply for this exemption facility by submitting Form C.J. (Pentad.) 2 to the sales tax office for approval. Following document are to be attached:

  • Application letter using the company letterheads;
  • Business registration (sole proprietor/partnership);
  • M&A, Form 24, Form 49 (Companies);
  • Information of authorized company officials;
  • A  copy of photograph;
  • A photocopy of identity card;
  • Company profile;
  • List of goods;
  • Location plan;
  • The name of the licensed manufacturer and his sales tax licence;
  • Purchase orders to the local licensed manufacturer;
  • Orders from the foreign purchasers, letter of credits etc.

It should be emphasized that the marketing arm or the trading houses approved of this facility should comply with the imposed conditions to avoid exposure of sales tax. The imposed conditions, among others, include the following:

  • Goods are to be exported within six months from the date of purchase;
  • Goods are not to be sold or disposed of in the Federation;
  • Form C.J.(Pentad) 2 and customs export declaration forms (Customs No. 2) and invoices are to be submitted to the sales tax office after completion of export.
  • The marketing arm or trading houses shall keep records or accounts of goods purchased and such records be made available for inspection by a senior officer of sales tax.


The marketing arm or trading houses to whom the exemption is approved is liable to pay sales tax when the following occurs:

  • When the goods are sold in the domestic market;
  • When the marketing arm or trading houses approved are not able to account for the goods purchased;
  • When the goods are not exported within six months from the date of purchase.


This facility is preferred over the drawback facility under section 29 of the Sales Tax Act 1972 for the following obvious reasons:

  • No up-front payment of sales tax;
  • Less administrative bureaucracy.


Exemption under Schedule C
The Schedule C grants exemption to manufacturers engaging in the manufacture of selected non-taxable goods. Such manufacturers are exempted from payment of sales tax on raw material and components used in manufacture.
The exemptions under the Schedule C is intended to reduce the cost of production of selected non-taxable products such as pharmaceutical products, carton boxes, perfumes, plywood, retread tyres, computers etc.

Item 12 allows the manufacturers who manufacture non-taxable goods for export to import or acquire from a licensed manufacturer taxable raw material and components exempted from sales tax. This exemption facility helps to reduce the cost of production of non-taxable products in order to be competitive in the global market. It is pertinent that the manufacturer approved of this facility complies with the imposed conditions to avoid exposure of sales tax. The conditions are as follows:

  • Goods are used for manufacture of goods for export;
  • Goods are used and the goods produced thereof are exported within one year from the date of purchase or import or such further period as approved by the Director General;
  • Raw material and components and the goods produced thereof shall not be sold or disposed of in the Federation except as approved by the Director General and upon payment of the appropriate amount of sales tax;
  • The manufacturer shall keep records or accounts pertaining to the raw materials and components and such records or accounts be made available for inspection by an officer of the sales tax at any time;
  • The manufacturer shall pay all the sales tax on any raw materials and components that cannot be accounted for;


Like any other exemptions, conditions are imposed on the persons approved of exemption facilities under the Schedule B and Schedule C of the Order. These conditions are necessary to ensure that the goods, on which sales tax is exempted, are used by the person exempted and for the purpose to which the exemption is granted. Non-compliance to such conditions may result in the exemption facility being withdrawn. In addition, sales tax shall become payable.
Drawbacks
 Section 29 of the Sales Tax Act 1972 allows the drawback of sales tax paid in respect of goods which are subsequently exported. It is the intention of the Government to promote export of the locally manufactured products by reducing the cost of production, thereby enhancing the competitiveness of such products in the global market.

A manufacturer may apply for drawback of sales tax paid in respect of goods upon exportation of such goods. Generally, drawback of sales tax may be broadly categorized as follows:

  • Drawback of sales tax on tax-paid finished goods, either imported or purchased from a licensed manufacturer, which are re-exported;
  • Drawback of sales tax on tax-paid raw material and components that are used in the manufacture of finished goods for export.


Claim for drawback of sales tax must be made in the prescribed Form JKED No,2 and supported by the relevant document.

In the case of drawback of sales tax related to raw material and components, prior application must be submitted to the sales tax office for the use of the drawback facility. The manufacturer is required to disclose the particulars in respect of raw materials and components, the finished goods as well as the proposed formula for the computation of drawback. Visits to the manufacturing premises are usually conducted to verify the application and for purpose of confirming the formula of computation. Where the drawback involves both import duty and sales tax, the claim for drawback is made together in the same JKED No. 2 form.  In all cases, the claim for drawback would be thoroughly scrutinized to ensure that the applicant has complied fully with the imposed conditions.

With the introduction of the exemption facilities under Item 91, Schedule B and Item 12, Schedule C of the Sales Tax (Exemption) Order 1980, the significance of the drawback facility under section 29 of the Sales Tax Act 1972 has diminished.

Refund:
It is provided under section 32 of the Sales Tax Act 1972 that the Director General may allow the refund of sales tax or penalty that was overpaid or erroneously paid, provided a claim is made within one year after the overpayment or erroneous payment was made. The application for refund must be made in the prescribed form JKED No.2 together with the relevant supporting document.

However, section 32 is amended with effect from 1 January 2000 to bestow additional power to the Director General to reduce or altogether disallow any refund due under section 32 to the extent that the refund would unjustly enrich the claimant on the assumption that the money refunded would not be passed on to the consumers.

In the event that the refund application is disallowed by the Director General or in other refund cases such as the stipulated period of one year from the date of overpayment or erroneous payment has expired, the affected person may apply to the Minister for refund under section 10 of the Sales Tax Act 1972. Once approved, the person is required to submit an application to the sales tax office for the refund of the approved amount of sales tax or penalty.

Remission Of Sales Tax/Penalty:
Any person or class of persons who are required to pay sales tax or penalty may apply to the Minister for remission of such sales tax and penalty as provided under section 33 of the Sales Tax act 1972. The application for remission must be submitted to the Tax Analysis Division of the Ministry of Finance.

The Minister may, if he thinks it just and equitable to do so and subject to such conditions as he may deem fit to impose, remit the whole or any part of the sales tax or penalty payable by such person or class of persons.


Sales Tax - Part 6

Recovery Of Sales Tax And Penalty:

The Sales Tax Act 1972 is enacted for documentary control which requires a taxable person to account to the sales tax authorities the sales tax payable. As such, it is pertinent that provision be made in the Sales Tax Act 1972 to enable the sales tax authorities to recover sales tax and penalty from the taxable persons.

Demand For Sales Tax Short Paid:

Under the system of documentary control, the books of accounts maintained by the taxable persons would be scrutinized by the officer of sales tax. If it is discovered that the amount of sales tax paid by the taxable person through the sales tax return is less than the amount payable, a written notice would be sent to the taxable person to demand the deficient sales tax. However, such demand, as provided under section 30 of the Sales Tax Act 1972, must be made within three years from the date on which such sales tax were payable.

Section 30 was amended with effect from 1 January 2000 to enable the sales tax authorities to demand from the taxable person any penalty payable by such taxable person. Prior the amendment, any penalty payable may only be recovered as a civil debt under section 23 of the Sales Tax Act 1972.

Seizure Of Goods:

To compel the payment of sales tax or penalty, any goods, which are stored at the following premises, belonging to such person liable to pay such sales tax or penalty may be seized by the sales tax authorities until such sales tax/penalty is paid:

  • Places under customs control;
  • Places under excise control;
  • Places specified in the sales tax licence.


Where the sales tax/penalty remains unpaid, the sales tax authorities may sell such goods, after giving not less than 30 days’ notice in writing to the owner or after the due notice in the Gazette (if the owner is not known). The proceeds from the sales of such goods would be apply to the sales tax/penalty demanded and the surplus shall be paid to the owner or the Consolidated Fund.

Recovery Of Sales Tax/Penalty As Civil Debt:
The sales tax authorities may institute a civil proceeding to recover any sales tax due and payable and any penalty accruing under the Sales Tax Act 1972. This is provided under section 23 of the Sales Tax Act 1972.

It should be noted that recovery of penalty as a civil debt under section 23 was subject to the provisions of section 6(4) of the Limitation Act 1953 which imposes a statutory limitation of one year from the date on which the cause of action accrue. However, section 23 was amended with effect from 6 July 2001 so that a penalty under the provisions of section 6(4) of the Limitation Act 1953 is precluded.

Joint And Several Liability Of Directors:
Section 26 of the Sales Tax Act 1972 stipulates that directors, partners are jointly and severally liable for the sales tax payable by the company, firm, as the case may be. In this respect, the sales tax incurred by the licensed manufacturer may be recovered from the:

  • Directors of the company, including persons who were directors of such company (in the case where the licensed manufacturer is a company);
  • Partners of the firm, including persons who were partners of such firm (in the case where the licensed manufacturer is a firm).

Section 26 was amended with effect from 6 July 2001 by inserting a proviso to deal with a company that is being wound up under the Companies Act 1965. In this case, the directors of a company shall only be liable for any sales tax, penalty or surcharge due when the assets of the company are not sufficient to meet the amount due, after making those payments having priority under the Companies Act 1965 over the sales tax, penalty or surcharge.

Recovery Of Sales Tax From Persons Leaving The Federation:
If there is reason to believe that a taxable person is about to leave the Federation before any sales tax due by him becomes payable, the Director General may invoke power provided under section 27 of the Sales Tax Act 1972 to direct that such sales tax be payable on such earlier date as he may determine.

A new section 27A was enacted with effect from 1 January 2000 to enable the Director General to recover any sales tax, penalty, surcharge or other moneys from any person who is about or is likely to leave the Federation without paying such sales tax, penalty, surcharge or other moneys.

In addition, the Director General may issue to any Director of Immigration a certificate containing details of the sales tax, penalty, surcharge or other moneys payable and request that such person be prevented from leaving the Federation until payment in respect to the sales tax, penalty, surcharge or other moneys has been made or a security to the satisfaction of the Director General has been furnished.

Upon receiving the request, the Director of Immigration shall exercise all measures, including the removal and retention of any certificate of identity, passport, exit permit or other travel document in relation to that person, to prevent such person from leaving the Federation.

When payment in respect to the sales tax, penalty, surcharge or other moneys has been made or a security to the satisfaction of the Director General has been furnished, the Director General would issue a written statement specifying that all sales tax, penalty, surcharge or other moneys stated in the certificate has been made or that a security has been furnished for its payment. Such written statement signed by the Director General shall be sufficient authority for allowing that person to leave the Federation.

Collection of sales tax/penalty from person owing money to taxable person
Where any sales tax, penalty or surcharge is due and payable by a taxable person, the Director General may, by notice in writing, recover such outstanding amount from the following persons:

  • any person by whom any money is due or accruing or may become due to the taxable person;
  • any person who holds or may subsequently hold money for or on account of the taxable person;
  • any person who holds or may subsequently hold money on account of some other person for payment to the taxable person;
  • any person having authority from some other person to pay money to the taxable person.


A copy of notice shall be forwarded to the taxable person at his last known place of address.

All payments made pursuant to the notice shall be construed to be made on behalf of the taxable person.

Offences And Penalties:

Part X of the Sales Tax Act 1972 makes provisions for offences and penalties. Such provisions are necessary to ensure due compliance with the provisions of the Sales Tax Act 1972 and the Sales Tax Regulation 1972.

The court of jurisdiction is as provided under section 47 of the Sales Tax Act 1972. In this case, a session court in West Malaysia or a court of a Magistrate of the First Class in Sabah and Sarawak shall have jurisdiction to try any offence under the Sales Tax Act 1972.

The principal offences are provided under section 43 of the Sales Tax Act 1972. Such offences, among others, include failure to comply with the following requirement

  • section 12    - to compute and pay sales tax on locally manufactured taxable goods;
                      - to compute and pay sales tax on taxable goods imported;
  • section 13    - to apply for a sales tax licence when carries on a business    of manufacturing taxable goods;
  • section 17    - to issue invoices in respect to sales of taxable goods;

                            - to state in the invoice the amount of sales tax separately to the prices from which the taxable goods are sold;

  • section 18    - to keep true and full records;

                             - to preserve the records for a period of six years;

  •  section 19    - to submit a sales tax returns within the stipulated time;
  • section 22    - to pay sales tax within the stipulated time;
  • section 28    - to pay to the Director General, on behalf of a taxable

                               person, sales tax, penalty or surcharge payable by such
                               taxable person;

  • Caries on business at any place not specified in the licence;
  • Fails or refuses to produce any books or document for the examination or retention by the  proper officer;
  • Fails or refuses to give correct information;
  • Pays a lesser amount of sales tax than is required by the Sales Tax Act 1972;


The offender, upon conviction, shall be liable to a fine not exceeding RM5,000.00 or to imprisonment for a term not exceeding 12 months or to both such fine and imprisonment.


Evasion Of Sales Tax:
The Sales Tax Act 1972 was amended with effect from 1 January 2000 by inserting a new section 43A to provide the gravest penalty for offences that are done with willful intent to evade or to assist any other person to evade sales tax. Section 43A also specifies circumstances under which a person is presumed to have acted with intent to evade sales tax. The insertion of section 43A is aimed at deterring fraudulent evasion of sales tax.

The offender, upon conviction, shall be liable to a fine not exceeding RM5,000 or to imprisonment for a term not exceeding 3 years or to both such fine and imprisonment.

Offences By Corporate Bodies:
Where an offence has been committed by a corporate body, any person who, at the time of the commission of the offence, was a director, manager, secretary or a partner shall be deemed to be guilty of such offence. The onus is on such person to prove that the offence was committed without his consent or connivance and that he had exercised all such diligence to prevent the commission of the offence.

It is also provided under section 45 of the Sales Tax Act 1972 that every person shall be liable to every act, omission, neglect or default committed by the clerk, servant or agent in the course of his employment.

Compounding Of Offences:

A senior officer of sales tax has the option of not charging a person in court for offences committed under section 43 of the Sales Tax Act 1972. The senior officer of sales tax can offer a compound to such person and the amount of the compound shall not be more than RM5,000.

On payment of the compound, the person, if in custody, shall be discharged and any goods seized shall be released.
Disputes And Appeals:
A person who disputes the decision of a proper officer may appeal to the Director General under section 68(1) of the Sales Tax Act 1972 and subject to section 68(2), the decision of the Director General shall be final.

Where a person is aggrieved by a decision of the Director General, he may appeal to the Customs Appeal Tribunal and shall be final. However, a person aggrieved by the decision of the Tribunal may appeal to the High Court on a question of law or of mixed law and fact.

Customs Rulings:
In order to provide the business sector with greater certainty and predictability in planning their business activity, the Sales Tax Act 1972 was amended with effect from 1 January 2007 by inserting the new sections 11A, 11B, 11C, 11D and 11E.

In this case, a manufacturer may apply to the Director General for customs rulings under section 11A of the Sales Tax Act 1972 on the following matters:

  • Classification of goods;
  • Whether the business activity undertaken by the manufacturer constitutes ‘manufacture’;
  • Principles of determination of sales value of goods;
  • Other matters as prescribed by the Director General.


Application for customs ruling must be made in the prescribed form together with sufficient facts and a prescribed fee.