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TOPIC 1 INDIRECT TAXES

TOPIC OUTLINE:
The Function of Royal Custom Department Scope of Tax Sales Tax Service Tax Custom Duty (Import and Export) Excise Duty Goods and Service Tax Taxable Person Tax Rate and Computation of Tax Exemption and Refunds Offences and Penalties

Indirect Taxes
Administered by Royal Customs Department Types of indirect taxes: a. services tax GST b. sales tax c. custom duty d. excise duty

The principle powers of a proper customs officer under the Customs Act 1967:
Section 13(1): i. Determine the class of goods to which such dutiable or uncustomed goods belong; &

ii. Value, weight, measure or otherwise examine the dutiable or uncustomed goods.

Section 13(2): When a valuation of goods has been made by the Proper Officer of Royal Customs, such valuation shall be presumed to be correct until the contrary is proved.

Service Tax
A form of indirect tax levied on customers who consume food or services in places such as restaurants, hotels, health centers, or establishments engaged in professional services such as legal firms, auditing firms, etc. These businesses accountable to the Royal Customs and Excise Department under Service Tax Act 1975 (Act 151), effective 1 March 1975. Generally, service tax is 5% on an organizations annual sales turnover of RM300,000 and above (w.e.f. January 2002)

Continue Scope of Charge:

Sec. 3 STA (1975): Service tax shall be charged and levied in accordance with this Act on any taxable service provided by any taxable person, except exported taxable service. Amended by Service Tax (Amendment) Act 1999, effective 1/1/2000. New definition consolidates the taxable service (inclusive of food) and taxable person into various groups. Shall apply throughout Malaysia excluding Langkawi, Labuan, Free Zones and Joint Development Area.

Taxable products/services

Hotels having more than 25 rooms Restaurants located in the hotel having more than 25 rooms Restaurants located in the hotel having 25 rooms or less but having a total annual sales turnover of more than RM500,000

Restaurants/food courts located outside hotel and have a total annual sales turnover more than RM500,000
Night-clubs, health centers, massage parlors and pubs Private club

Private hospitals

Taxable products/services
Telecommunication services Credit card company Forwarding agent Parking Professional engineer Architect

Surveyors
Consultancy services Veterinary clinics Hire-car services Management services

Courier
Repair center Private agency

Employment agency
Public accountant Advocate and solicitor

Advertising services

Exemption
Exempted from the service tax are:

1. Hotels having not more than 25 rooms


2. Hostels for pupils or for students of education institutions 3. Hostels established and run by public institutions or bodies.

4. Professional services provided to companies within the same group (w.e.f. y/a 2003)
5. Courier service provided from a point within Malaysia to a destination outside Malaysia

Determination of charge and value


Taxable services

the charge levied or collected. the premium of insurance coverage. where no charge or premium, the charge or
premium which would have been levied or collected in ordinary course of business.

Determination of charge and value


Taxable goods

the actual price for which the goods are sold. when no charge is made, the charge which would have
been made in the ordinary course of business.
Rate of tax the rate of service tax is 5% of the charge of the services or actual price or charge of the goods provided by taxable person.

Sales Tax
Imposed on taxable goods manufactured in Malaysia. Law governing the imposition of sales tax is the Sales Tax Act 1972 (Act 64), effective from 29/2/1972.

Imposed on consumers, collected by business enterprises and accountable to the Royal Customs and Excise department. Also known as consumption tax.

Scope of Charge:

Sec. 6 STA 1972- Subject to this Act, sales tax shall be charged and levied on all taxable goodsa. manufacture in the Federation, or acquired under the provision of Sec. 9, by a taxable person and sold, used or disposed of by him, otherwise than by sale or disposed to a licensed manufacturer authorized by the Director General to acquire such goods without payment of tax; b. imported into the federation by any person for consumption. home

Sales tax would be imposed on: a. manufacturer upon sale, use or disposal of taxable goods in Malaysia; b. importer of taxable goods. Taxable goods:
Goods of a class or kind not for the time being exempted from sales tax. It covers all goods unless they fall within the exemption list in Schedule A, B or C of the Sales Tax (Exemption) Order 1980.

o Schedule A a list of goods, sorted by Customs


Tariff Code that are exempted from sales tax. These range from food, chemicals, plant and machinery to jewelry.

o Schedule B provides a list of the types of

persons (114 persons) that are exempted from the payment of sales tax.

o Schedule C provides a list of manufacturers that


are exempted from the payment of sales tax.

The manufacturer of taxable goods with the sales turnover of RM100,000 or more shall apply for a sales tax license. The licensed manufacturers are exempted from the tax at the input level and only have to pay the tax at the output level. A manufacturer acquiring product from another manufacturer for additional processing, would not be liable for sales tax. Sales tax is imposed on the output level when it is disposed to the consumer. The collecting agents for sales tax would be the manufacturer or the importer. No sales tax is collected by trading company.

Exemptions: o Manufacturers whose sales value of taxable


goods do not exceed RM100,000 per annum.

o Basic food-stuffs, basic building materials,


certain agricultural implements and machinery, certain tourist and sports goods, books, newspapers, other reading materials and computers.

o All exports

o Certain privileged persons, diplomats and


government agencies.

o Raw materials and machinery for manufacturing of


taxable goods.

o Inputs for selected non-taxable goods Schedule


C.

o Motor vehicles for providing mobile libraries and


clinics services.

o To stabilize the prices of petroleum products at the


controlled level, partial or full exemption are granted under the Automatic Price Mechanism.

For manufactured goods, sales value = market value


For imported goods, sales value = value of the goods for custom duty + import duty

Current Rates:

General rate on all goods Fruits, certain food-stuffs Cigarettes and tobacco
Alcoholic beverages Petrol Diesel
products and building materials

- 10%
- 5% - 25% - 20% - RM0.5862 per liter - RM0.1964 per liter

Custom Duty
These duties are fixed by the Minister of Finance through a statutory order which is gazetted. Custom duties governed by the Customs Duties Order 1996 issued under the Customs Act 1967. Levied on any goods imported into Malaysia (Import duty) or exported from Malaysia (Export duty) and are to be paid by the importer or exporter. Certain classes of persons and types of goods are exempt from customs duties under specific exemption orders. Meanwhile, the Customs (Prohibition of Imports) Order 1988 and the Customs (Prohibition of Exports) Order 1988, prohibit the import and export of specified goods into or from Malaysia.

Import Duty
Imposed on the imported goods with large quantity. Rate ranging from 2% - 300%. In 2003, with the implementation of AFTA, the import duty on majority of the products from ASEAN will be reduced to 0% -5%.

Export Duty
The computation of export duty is based on the value of goods exported.

The rates for goods exported vary for different goods.

Excise Duty
A form of duty imposed on locally manufactured goods. The rate of duty to be levied is determined by the Minister of Finance and published in the gazette as stipulated in Sec. 6 of the Excise Act 1976, and the rates are either specific or ad valorem rates. Goods listed in the Excise Duties Order 1991: alcoholic beverages and spirits, cigarettes, playing cards and mahjong tiles, and motor vehicles (i.e. passenger vehicles excluding buses).

Continue
Sec. 20 Excise Act 1976 no person shall carry out or be concerned in any manufacturing operations when the finished product so produced is one of the goods prescribed in the Excise Duties Order 1991, unless he is in possession of a valid license issued by the Director General of Customs. All factories licensed under Sec. 20 of the Act are subject to the control of officers of the Customs Department. Licensed premises are being controlled either by:

physical means (custom officers posted at the factory).


documentary means (maintain books and records).

Exemption: o Taxi and cars-for-hire operators on the purchase


of national cars

o Motor vehicles for providing mobile libraries and


clinics services

o The physically disabled persons on the purchase


of national motorcars and motorcycles (50% exemption- Budget 2001)

Goods & Service Tax (GST)


Budget to introduce a GST in 2007(postponed) The GST would replace the sales tax and service tax The features of GST:

the tax is collected at every stage of the production process; &


the amount collected at each stage is based on the value added at that stage.

The rational for introducing GST is as follows:


improve collection of revenue for the Government in a manner that is more comprehensive, transparent and effective; means of increasing the Government tax base by reaching out to a broader group of people, namely customers;

improve tax compliance as taxable persons are compelled to maintain orderly accounts and hence there is less scope for tax evasion; provide opportunity for the Government to lower corporate and individual tax rates;
foster greater inbound direct investments as well as encourage savings among Malaysian citizens.

Total GST Collected (Assumed GST rate : 15%) Supplier


RM100 + RM15 RM15 GST

Manufacturer
RM200 + RM30

RM15 GST (RM30 15) RM7.50 GST

Wholesaler
RM250 + RM37.50

(RM37.50 30)

Revenue Authority

Retailer
RM360 + RM54

RM16.50 GST (RM54 37.50)

Total GST collected = RM15 + 15 + 7.50 + 16.50

Consumer

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