This is an ad valorem or 'according to value' single stage tax imposed at the import and manufacturing levels. Manufacturers are required to be licensed under the Sales Tax Act 1972. The general rate for sales tax is 10%. Raw materials and machinery for use in the manufacture of taxable goods are eligible for exemption from the tax. Inputs for selected non-taxable products are also exempted. Certain non-essential foodstuffs and building materials are taxed at 5%. Cigarettes and liquor are taxed at 15%. Exempted items are primary commodities, basic foodstuffs, basic building materials, certain agricultural implements and heavy machinery for use in the construction industry, certain tourist and sports goods, books, newspapers and reading materials.
Manufacturers whose annual sales turnover do not exceed RM100,000 are exempted from licensing. These companies are taxed based on their inputs. However to alleviate the burden of small manufacturers from paying sales tax up front on their inputs, these companies can be licensed under the Sales Tax Act 1972 in order to purchase tax-free inputs. With this option, manufacturers will only have to pay sales tax at the final stage of the manufacturing process.
Service tax is imposed on certain goods and services provided in certain prescribed establishments. Service tax on goods include food, drinks and tobacco. Service tax on services are provision of rooms for lodging; provision of premises for meetings, conventions, cultural and fashion shows; health services, professional and consultancy services provided by legal, engineering, surveyor, architectural, accounting, advertising, consultancy firms, insurance companies, motor vehicles service and repair centers, telecommunication services, security and guard services, recreational clubs, estate agents, parking space services, courier service firms, dentists, veterinary doctors; provision of accommodation and food by private hospitals and credit cards companies.
The tax base has been widened to include services provided by the car rental agencies licensed under the Commercial Vehicles Licensing Board Act 1987 and having an annual sales turnover of RM300,000 and above; employment agencies having an annual sales turnover of RM150,000 and above; and companies providing management services including project management/coordinating services having an annual sales turnover of RM300,000 and above.
Generally, the imposition of service tax is subject to a specific threshold based on annual turnover ranging from RM150,000 to RM500,000.