Taxes on imports and exports in Malaysia: Custom, Excise and Export Duty

Since May 2020, Malaysia has had a trade surplus consecutively every month. Malaysia is situated in a very strategic position that gives it the advantage of being a gateway to the Asian markets. No wonder, it is an import-export hub.

For businesses that import or export goods and services , understanding the taxes on imports and exports is crucial. This blog will guide you through:

• Import tax in Malaysia: Custom duty, SST, Excise Duty
• Export tax in Malaysia and Incentives

Import Taxes in Malaysia

Import tax is what a government charges on the goods bought from another country. It is designed to protect local industries by regulating trade so that the economy can generate revenue. ITA (International Trade Administration) and MOF (Ministry of Finance) govern the rates and import guidelines in Malaysia.

There are different rates and taxes applicable for different goods and services that vary in value and classification under the Harmonized System (HS) Code.

There are 3 Major Categories of Tax applied on Imports

Import Duty

Import duties in Malaysia are levied on an ad valorem basis, meaning the tax is calculated as a percentage of the value of the imported goods. The rates of import duty vary significantly depending on the type of goods, with some items being fully exempt from duty. 

Import Duty rates can range from 0% to 60%, depending on the classification of the goods being imported.

Sales Tax on Imports

SST or Sales Service Tax in Malaysia is a consumption tax levied on both imported and locally produced goods. It is administered under the Sales Tax Act 2018 and is divided into two main categories: Sales Tax on taxable goods and Sales Tax on Low-Value Goods (LVG).

Sales Tax on Taxable Goods

This tax covers imported goods and locally manufactured products. Rates are typically 5% or 10%, but some goods are taxed on an ad valorem basis, depending on their value. The applicable rate is determined based on the product type. For instance:

• 5%: Food items and other essential products.
• 10%: Consumer goods like appliances, electronics, and clothing.

Sales Tax on Low-Value Goods (LVG)

• It has been recently introduced in Malaysia for the growing demand of e-commerce transactions. It is a flat 10% sales tax applied to online purchases of imported goods with a value not exceeding RM500.

Excise Duty on Imports

Excise Duty is imposed on specific goods, often for regulatory or public health purposes. These goods are usually luxury or non-essential items, and the tax aims to curb excessive consumption.

There is no one rate for the goods. They vary significantly by product and are typically higher for items hazardous for human consumption(e.g., tobacco and alcohol).

Import Duty Exemptions in Malaysia

Malaysia offers import duty exemptions to:

• Essential items like medical equipment, educational materials, renewable energy products, etc.
• Machinery, raw materials, and components for industries like electronics, textiles, automotive, and manufacturing sector
• Government-aligned products supporting national development goals.

Export Tax in Malaysia

Export taxes are imposed by Malaysia on goods/services that are being sold out of the country. These taxes can help regulate exports and generate revenue for the government.

In Malaysia, most goods are not subject to export duties, but a few specific categories of goods do attract export duties. These are typically items that are either unprocessed or raw materials. The government regulates these goods to manage supply and encourage domestic processing. 

Export duties in Malaysia range from 5% to 20% for these certain goods, that include:

1. Crude petroleum
2. Palm oil
3. Live animals
4. Palm nuts
5. Bamboo and rattan
6. Certain metal ores
7. Petroleum products
8. Metals

Export Incentives in Malaysia

When you export goods out of Malaysia, you get several benefits that range from 10-100% based on the goods you are trying to sell. The table below summarizes the key details of these incentives.

Special Schemes on Imports and Exports in Malaysia

In Malaysia, the FTA, FTZ, and LMW are specific trade-related frameworks and zones that are designed to facilitate trade, reduce costs, and support business activities. Here's an explanation of each:

FTA (Free Trade Agreement)

An FTA refers to a bilateral or multilateral agreement between two or more countries aimed at reducing or eliminating trade barriers such as tariffs, import quotas, and export restrictions. Malaysia has signed several FTAs with various countries and trading blocs, including:

• ASEAN Free Trade Area (AFTA): Malaysia is a member of ASEAN (Association of Southeast Asian Nations), and the AFTA aims to increase intra-regional trade by reducing tariffs among member countries.
• Malaysia–Singapore FTA: This is a bilateral trade agreement that facilitates easier trade between the two nations.
• Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP): Malaysia is a signatory to this trade agreement, which involves countries across the Pacific region.

FTZ (Free Trade Zone) and LMW (Licensed Manufacturing Warehouse)

A Free Trade Zone (FTZ) is a designated area in Malaysia where businesses can import goods without having to pay import duties or taxes, provided that the goods are not sold directly into the domestic market. Instead, goods within an FTZ can be stored, processed, or manufactured before being exported.

FTZs in Malaysia are typically used by companies engaged in manufacturing or assembly activities, especially in industries like electronics, textiles, and automotive. Malaysia has several FTZs located throughout the country, including in major ports like Port Klang, Penang, and Johor.

FTZs are often subdivided into two types:

• Free Industrial Zones (FIZs): These are used for manufacturing, processing, and export-related activities.
• Free Commercial Zones (FCZs): These focus on storage, trading, and distribution of goods.

An LMW (Licensed Manufacturing Warehouse) is a special warehouse license in Malaysia that allows companies to store raw materials, parts, or finished goods without having to pay customs duties until the goods are removed from the warehouse and enter the domestic market. This facility is designed to support manufacturers who import materials for processing or assembly and later export the finished goods.

Conclusion

As we gathered, Malaysia offers a balanced trade environment with favorable tax policies for both import and export businesses. 

Normally, Malaysia’s import/export duties vary depending on the goods' classification and value. These taxes can have some relief from incentives like duty exemptions, FTZ benefits, export incentives and Free Trade Agreements (FTAs). So, it inherently becomes important for us to understand and comply with Malaysian customs procedures if we want to take advantage of these benefits.