Indirect Tax Alert: Extension of Sales Tax Exemption, Issuance of Frequently Asked Questions and Gazetted Indirect Tax Legislations Effective 1 January 2021
We outline below the following Indirect Tax updates for your attention:
- A) Sales tax exemption on passenger cars under the Short-Term Economic Recovery Plan
On 5 June 2020, the Prime Minister of Malaysia announced a Short-Term Economic Recovery Plan to promote the growth of the automotive industry in Malaysia and to provide financial relief to car buyers via a sales tax exemption on the sale of locally-assembled passenger cars and the importation of passenger cars into Malaysia. The sales tax exemption provided is as follows:
- 100% sales tax exemption on the sale of locally-assembled passenger cars; and
- 50% sales tax exemption on imported passenger cars
The above sales tax exemption is extended to 30 June 2021 based on the media announcement (currently only available in Bahasa Malaysia) released by the Ministry of Finance (MOF) dated 29 December 2020.
- B) Frequently asked questions (FAQs) – cigarettes, tobacco products and electronic cigarettes
On 30 December 2020, the Royal Malaysian Customs Department (RMCD) issued a list of FAQs (currently only available in Bahasa Malaysia) to provide clarity and guidance on the measures implemented to combat the illicit trade of tobacco and related products.
The complete FAQs can be found here.
- C) Indirect Tax legislations
On 31 December 2020, the following amendments to the current Indirect Tax legislations (i.e., sales tax, service tax, Customs, excise and free zones) were published in the Official Federal Gazette. In addition, new Indirect Tax Orders, such as the Customs Duties (Langkawi) Order 2020, were gazetted on 31 December 2020. These new and amended Regulations and Orders came into operation on 1 January 2021.
The list of new and amended Regulations and Orders in the Indirect Tax legislations is appended below:
1) Sales tax
► Sales Tax (Amendment) Act 2020
► Sales Tax (Amendment) (No. 2) Regulations 2020
► Sales Tax (Imposition of Sales Tax In Respect of Designated Area) (Amendment) Order 2020
Additional provisions have been introduced in the sales tax law, which include, but are not limited to, the refund of sales tax by deduction; additional drawback conditions in respect of cigarettes, tobacco products and electronic cigarettes; offence related to improperly obtaining a deduction of sales tax; and others. Further, the imposition of sales tax on the importation of prescribed goods (e.g., petroleum, cigarettes, etc.) in Designated Areas has been revised.
2) Service tax
► Service Tax (Amendment) Act 2020
► Service Tax (Digital Services) (Amendment) (No. 2) Regulations 2020
- Service Tax (Amendment) (No. 2) Regulations 2020
- Appointment of Date of Coming Into Operation of Service Tax (Amendment) Act 2020
Additional provisions have been introduced in the service tax law, which include, but are not limited to, the variation of registration, issuance of credit notes or debit notes for the provision of digital services by a foreign registered person and others. In addition, the application of service tax remission, surcharge and others has been extended to a foreign registered person.
3) Customs
- Customs (Amendment) Act 2020
- Customs Duties (Amendment) (No. 3) Order 2020
- Customs (Amendment) (No. 2) Regulations 2020
- Customs (Prohibition of Imports) (Amendment) (No. 5) Order 2020
- Customs Duties (Langkawi) Order 2020
- Customs Duties (Pangkor) (Amendment) Order 2020
- Customs Duties (Tioman) (Amendment) Order 2020
- Customs Duties (Labuan) Order 2020
- Customs Duties (Goods of ASEAN Countries Origin) (ASEAN Harmonised Tariff Nomenclature and ASEAN Trade in Goods Agreement) (Amendment) (No. 4) Order 2020
- Customs Duties (Goods under the Framework Agreement on Comprehensive Economic Co-Operation between ASEAN and China) (Amendment) (No. 2) Order 2020
- Customs Duties (Goods under the Framework Agreement on Comprehensive Economic Co-Operation Among the Government of the Member States of the ASEAN and the Republic of Korea) (Amendment) Order 2020
- Customs Duties (Goods under the Agreement on Comprehensive Economic Partnership Among the Government of the Member States of the ASEAN and Japan) (Amendment) Order 2020
- Customs Duties (Goods under the Malaysia – New Zealand – Free Trade Agreement) (Amendment) Order 2020
- Customs Duties (Goods under the Agreement Establishing the ASEAN – Australia – New Zealand Free Trade Area) (Amendment) (No. 3) Order 2020
- Customs Duties (Goods under the Agreement Establishing the ASEAN – Hong Kong, China Free Trade Area) (No. 2) (Amendment) (No. 2) Order 2020
- Appointment of Date of Coming Into Operation of Customs (Amendment) Act 2020
Additional provisions have been introduced, which include, but are not limited to, the exportation and re-exportation of cigarettes from Malaysia, drawback on imported goods and others. The changes are mainly related to cigarettes, tobacco products and electronic cigarettes, as proposed under Budget 2021.
4) Excise
- Excise (Amendment) Act 2020
- Excise (Amendment) Regulations 2020
- Excise Duties (Tioman) (Amendment) Order 2020
- Excise Duties (Pangkor) (Amendment) Order 2020
- Excise Duties (Langkawi) Order 2020
- Excise Duties (Labuan) Order 2020
- Excise Duties (Amendment) Order 2020
- Appointment of Date of Coming Into Operation of Excise (Amendment) Act 2020
Additional provisions have been introduced, which include, but are not limited to, conditions with regard to the drawback on imported goods, power to seal goods and others. The changes are mainly related to cigarettes, tobacco products and electronic cigarettes, as proposed under Budget 2021.
5) Free zones
► Free Zones (Amendment) Act 2020
- Free Zones (Exclusion of Goods) (Amendment) Order 2020
- Appointment of Date of Coming Into Operation of Free Zones (Amendment) Act 2020
Additional provisions have been introduced in the free zones law, which include provision of power in relation to enforcement, investigation and inspection, additional powers to a proper officer of customs and evidence of an agent provocateur which is admissible at trial.
It is pertinent to note that the various amendments made to the respective legislations above could potentially impact your business operations. As such, we would recommend that you revisit your business operations to ensure that you remain compliant with the relevant legislations.
