Tax Incentives : Duties and Sales Tax exemption

Manufacturers licensed under the Sales Tax Act 1972 qualify for sales tax exemption on the inputs for their manufacturing operations. Manufacturers with an annual sales turnover of less than RM100,000 are exempted from licensing and are thus exempted from paying sales tax on their output. However, these manufacturers can opt to be licensed and obtain sales tax exemption on their inputs instead.

Certain categories of goods are exempted from sales tax at both the input and output stages. These include all goods (inclusive of packaging materials) used in the manufacture of controlled articles, pharmaceutical products, milk products, batik fabrics, perfumes, beauty or make up preparations, photographic cameras, wrist watches, pens, computers and computer peripherals, parts and accessories, carton boxes/cases, products in the printing industry, agricultural or horticultural sprayers, plywood,rethreaded tyres, uninterruptible power systems, machinery and manufactured goods for export.

NOTE : Application for import duty exemption is made to the Malaysian Industrial Development Authority (MIDA) except for MRO activities which is to be submitted to the Ministry of Finance while drawback of duties and sales tax exemption are made directly to the Malaysia Royal Customs Department

Under Section 99 of the Customs Act 1976, Section 29 of the Sales Tax Act 1972 and Section 19 Excise Act 1976, a drawback on import duty, sales tax and excise duty that have been paid may be claimed by a manufacturer if the parts, raw materials or packaging materials are used in the manufacture of goods for export within a year based on conditions stipulated in the Acts

Full import duty exemption is given on medical devices that are imported for the purpose of kitting or producing complete procedural sets, provided these medical devices are not manufactured locally

Companies undertaking maintenance, repair and overhaul activities qualify for import duty and sales tax exemption on raw materials, components, machinery and equipment, spares and consumables subject to each importation to be accompanied by certificates of parts and components issued by original equipment manufacturers (OEM)

Manufacturing companies’ export level should be at least 80% of its production or the spares and consumables have limited demand and do not have potential for domestic production or the import duty on such items exceeds 5% to qualify for import duty and sales tax exemption

Full exemption from import duty on raw materials/components is normally granted to products for the export market, provided the raw materials/components are not produced locally or, where they are produced locally, are not of acceptable quality and price. As for products for the domestic market, full exemption from import duty on raw materials/components that are not produced locally can be considered. Full exemption can also be considered if the finished product made from dutiable raw materials/components is not subject to any import duty

Owners of Malaysian brands with at least 60% Malaysian equity ownership who outsource manufacturing activities are eligible to be exempted from import duty and sales tax on raw materials and components used in the manufacturing of finished products by their contract manufacturers locally or abroad. Semi finished goods from their contract manufacturers abroad, to be used by their local contract manufacturer to manufacture the finished products will also be exempted from import duty and sales tax

Import duty and sales tax are exempted for imported machinery and equipment that are not available locally. For locally purchased machinery and equipment, full exemption is given on sales tax