This document provides an overview of indirect taxes in Malaysia, including sales tax, service tax, and the proposed goods and services tax (GST). It discusses the key concepts, scope, exemptions, rates, and compliance requirements for each tax. The objectives of implementing GST are also summarized, such as improving tax collection, increasing the tax base, and encouraging investment.

1. CHAPTER 9
INDIRECT TAXES
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2. LEARNING OBJECTIVE
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3. INTRODUCTION
 The responsibility to administer indirect taxation in
Malaysia lies with the DG of Royal Customs
Department
 There are several indirect taxes that are currently
regulated in Malaysia such as sales tax, service tax,
custom duty and excise duty.
 The legislations involving these taxes are:
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Custom Act 1967
Excise Act 1976
Sales Tax Act 1972
Service Tax Act 1975

4. Sales Tax
 The objective of sales tax are:
To increase revenue collection.
Used by the government as a financial measure to
regulate economic growth and national development.
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5. The Concept of Sales Tax
 Sales tax was first introduced into Malaysian taxation system
in 1972 and governed by Sales Tax Act 1972.
 It operates as a single stage tax – means tax is only imposed
once either at the input or output stage.
 It also called as a consumption tax which levied on
consumer who acquires the taxable goods manufactured in
Malaysia and goods imported to Malaysia for home
consumption.
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6. Scope of Sales Tax
 Section 6 of the Sales Tax Act 1972 states that sales tax
is charged and levied on:
All taxable goods manufactured in Malaysia (except those
in Free Zones, Labuan, Langkawi and Joint Development
Area).
Goods imported for home consumption.
 Taxable goods (Section 2) – all goods except those
exempted under Sch. A, B and C of Sales Tax
(Exemption) Order 1980.
Sales tax is not imposed on personal or professional
services (i.e, doctor’s services), sale of real property (i.e.,
land and house).
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7. Duties of Taxable Person
 Taxable person – domestic manufacturer and
importer of taxable goods
 Duties of taxable person:
At point of sales, compute and include sales tax in the
invoice.
Keep records of sales and sales tax for 6 yrs.
File sales tax return within stipulated period.
Make payment within stipulated period.
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8. Rates of Sales Tax
5% - Fruits, certain foodstuff, timber and
building material.
 10% - General rate on other taxable goods
 5% - Cigarettes
5% - Liquor and alcoholic drinks.
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9. Payment of Sales Tax
 When the imposition of Sales Tax
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Manufactured goods
Charged at the time of sale to customer
Charged at the time of disposal (if the goods not sold – self use,
destroy, donate or supply free of charge to other party).
Imported goods
Charged at the point of entry in Malaysia together with the
custom duties.

10. Payment of Sales Tax
 Sales tax imposed should be paid within 28 days from
the expiration of the taxable period.
 Taxable period means every two calendar months.
Example:
Jan – Feb Due date: 28 March
Mac – Apr Due date: 28 May
 The tax collected is payable to Royal Custom and Excise
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Department.

11. Determination of Sales Value
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 Imported goods
The sales value would be the aggregate of the value of
the taxable goods for custom duty purposes and amount
of customs duty imposed on such goods at custom
clearance upon entry into Malaysia.

12. Determination of Sales Value
Example:
Candy Sdn. Bhd imported goods from Jakarta. The cost
of purchase was RM280,000. Freight charges and
insurance on goods was RM2,800 and RM3,500
respectively. The goods arrived at Port klang on 24
January 2012. The custom duty was 25%.
Compute the sales tax payable by Candy Sdn. Bhd.
(assuming the sales tax is 10%)
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13. Discussion
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Answer:

14. Determination of Sales Value
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Manufactured goods
If sold to independent person – sales value = actual
selling price.
If sold to non-independent person – sales value = market
value.

15. Continue
 Sales value should only include manufacturing costs
such as:
Cost of raw material
Direct labour cost
Manufacturing o/head (rental, electricity, water)
Non-manufacturing o/head (office exp, advertising)
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16. Continue
Depreciation of machinery, building and equipment
Profit or mark up.
 Cost involving marketing and sale should be excluded.
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17. Example –
Manufactured Goods
 Intan Sdn. Bhd is a manufacturing company located at
Kuantan. The company incurred the following expenditure in
producing finished goods. All the finished goods were sold in
cash to Orchid Bhd on 1 Jan 2012. Intan Sdn. Bhd has no
control over Orchid Bhd.
Cost of raw material RM250,000
Cost of direct labour RM33,000
Manufacturing o/head RM24,000
Non-manufacturing o/head RM7,200
Depreciation of machinery RM26,000
Salesman commission RM5,500
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18. Example –
Manufactured Goods
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Profit mark up is 20%
 Required:
 Compute the sales tax imposed on Orchid Bhd at the point of
sales (assuming the rate of sales tax is 10%).

19. Exemption on Raw Material
Inputs
 Ring System [section 9(1) and (2) Sales Tax Act]
– Provision of tax free materials from one manufacturer to
another
– Application has to be made to the Sales Tax Office
– The applicant has to be licensed
– The materials are used in the manufacture of finished
product
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20. Exemption on Raw Material
Inputs
 Refund System [section 31 Sales Tax Act]
– Modified version of ring system
– A licensed manufacturer can purchase raw materials free
of sales tax from a vendor who has paid the sales tax
– The vendor can then apply to claim a refund
 Credit System [section31A Sales tax Act]
– Intended for small manufacturers
– Ensures their inputs do not suffer any tax
– Based on a refund of tax paid by the manufacturer
– Licensed manufacturer able to obtain a credit of the tax
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21. Penalty
• Where any amount of sales tax remains unpaid
after the last day on which it was due, a penalty of
10% of such unpaid amount shall be payable
• If the sales tax due and payable remains unpaid for
more than 30 days after the last day on which it is
payable, the rate of penalty will be increased by
10% for the second period
• Maximum penalty 50%
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22. Service Tax
 Service tax was introduced into Malaysian taxation
system in 1975 and governed by Service Tax Act 1975.
 It also operates as a single stage tax – means tax is only
imposed once either at the input or output stage.
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23. Service Tax
 It also called as a consumption tax which levied on
consumer who consumes prescribed goods sold and
services provided by the prescribed establishment or
prescribed professional establishment.
 Rate of service tax is 6% effected from 1 January 2011.
Prior to 1 January 2011, the rate of service tax was 5%.
 The Service tax applies throughout Malaysia excluding
Langkawi, Labuan, Tioman and Joint Development
Area.
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24. Licensing Requirements
(Section 8 STA)
 Every taxable person is required to apply for a license
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to collect services tax.
 No taxable person is allowed to carry on the business of
providing taxable services or selling or providing
taxable goods unless in possession of such a license.
 The license will remain a taxable person until his license
is revoked.

25. Licensing Requirements
(Section 8 STA)
Director General of the Royal Customs Department
revokes/cancel if:
 Cessation of business
 Death
 Dissolution of company
 Failure to provide taxable services
Voluntary licensing (Section 8A STA)
Any person who is not required to be licensed, voluntary
apply to the DG to be licensed to collect services tax from
their customers. The license will be granted if the person
satisfied to the Director General – provides taxable service.
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26. Continue
 The service tax is levied on the:
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Taxable Person
Operators of hotel, excluding for hotel not more than 25 rooms,
hostels for students of education institutions or religious
institution.
Operators of restaurants, bars, snacks-bars or coffee houses
located in hotels, health centers, private clubs having annual
sales turnover of at least RM300,000 of taxable goods and
taxable services.
Motor vehicles service agencies, companies, firms and sole
proprietors providing employment services, hire & drive car,
consultancy services, telecommunication services, management
services and others.

27. Continue
 The service tax is levied on the:
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Taxable services
Provision of rooms for lodging or sleeping accommodation in a
hotel having than 25 rooms, premises for meeting or for
promotion of cultural or fashion shows, health services,
massages or beauty salons in a hotel having more than 25
rooms.
Provision of all advertising services, accounting, auditing,
bookkeeping, consultancy and other professional services
provided by Public Accountants.
Provision of all types of employment services, parking space for
motor vehicles, credit card, services provided by dentists and
veterinary surgeons and others.

28. Scope of Charge
 Timing of imposition of service tax
Prescribed taxable goods – the tax is levied at the point
of sales.
The actual price for which goods are sold OR
Where no charge is made, the charge which would have been
made in the ordinary course of the business
Prescribed taxable services – charged at the time when
the taxable service is provided to customer by taxable
person.
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29. Example
 Elite Corporate Service Sdn Bhd (ECSB) is a Penang based
company providing taxable services to its clients under STA.
In providing consultancy services to its client, Ramsami
Bhd., ECSB sough legal advice from Dharma & Co., a
reputable legal firm located in Sungai Petani. The legal firm
issued an invoice amounting to RM7,500 (inclusive of
service tax). ECSB issued an invoice for RM10,000 to
Ramsami Bhd. being charges for consultancy services. ECSB
provided all the services to Ramsami Bhd. in June 2012.
miscellaneous expenses incurred by ECSB are as follows:
 Transport cost RM450
 Telephone expenses RM120
 Fax charges RM30
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30. Discussion
Required:
 Assuming that ECSB provides taxable services under the
Service Tax Act, prepare the invoice to be issued by the
company to Ramsami Bhd. Indicating all charges, icluding
the sum invoiced by the legal firm (Dharma & Co.)
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31. Management Services
 Corporate affairs' management
 Human resource management
 Internal audit
 Management information systems
 Administrative and secretarial
 Sales and marketing management
 Property management
 Financial management
 Asset management
 Project management services
 Construction management services
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32. Management Services
Management services provided by a company in a
group of companies to any company in the same
group of companies are no longer regarded as
taxable services.
To qualify as companies within a group, one
company within the group MUST control the other
company. The required shareholding is:
At least 50% of issued share capital either directly or
indirectly through subsidiaries, OR
Between 20% to 50% with the powers to appoint or
remove all or a majority of directors in the second
company
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33. Payment of Service Tax
 Service tax imposed should be paid within 28 days from the
expiration of the taxable period.
 Taxable period means every two calendar months.
Example:
Jan – Feb Due date: 28 March
Mac – Apr Due date: 28 May
 The tax collected is payable to Royal Custom and Excise
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Department.

34. Goods and Service Tax (GST)
 The Malaysian govt made a commitment in the Budget
2005 to introduce GST in 2007 but has postponed of its
implementation to 2010?
 GST is a levy on consumption and is essentially a
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territorial tax.
 This tax will replace the sales and service tax
 The common features of GST are:
 The tax is collected at every stage of production process
 The amount collected at each stage is based on the value added at
that stage.

35. Rationale for GST
 The rationale for introducing GST is as follows:
 It would 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 consumers
 The GST system has a self-policing mechanism due to in-built
cross checking features which would improve tax
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compliance
 Provide opportunity for the Government to lower corporate
and individual tax rates
 Encourage greater foreign direct investment as well as
foster saving among the taxpayers.

36. Attributes of GST
 Input Tax credit - the gross GST liability of each business
is assessed as tax rate applied to sales and then allows the
business credit against GST incorporated in the business
input costs
 Zero Rating – totally free of GST but can claim input
tax credit during the purchase.
 Exemption – not required to charge GST on their sales
and not entitled to claim input tax credit on their
purchase.
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37. Drafting Legislation for GST
 The following are the four pronged rules should taken
into consideration in drafting legislation for GST:
Rule 1: Reduce exemptions
Rule 2: Zero ratings only for exports
Rule 3: Exempt small business
Rule 4: Administration of GST and income Tax by the
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same agency.

38. Advantages of GST
 Could reduce the income tax rate for company as well as
individual taxpayers so that the income tax system becomes
more competitive
 Avoid cascading effect prevalent under existing sales tax and
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service tax
 Improve ability to detect non-compliance
 Increase the tax revenue in the future.
 GST is a multistage concept of indirect tax, thus should be
able to speed up the
 Collection of tax revenue for the government.

39. GST flow Chart
Supplier sell raw
materials
• Supplier collects GST on the value added at the first
stage (sale of raw materials) and remits the tax to
Government
Manufacturer sells
finished goods
• Manufacturer collects GST on the value added at the
second stage (raw materials converted into finished
goods) and remits to the Government
Retailer sells
finished goods
• Retailer collect GST on the value added at the third stage
(sales of finished goods) and remits to Government
Consumer
• Customer pays GST on the value of finished goods which is
the sum of the value added in the first to third stages
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40. THANK YOU
Q & A
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