indirect tax highlights - ernst & young...a follow-up tax alert will be issued once significant...

These amendment Bills, except for the Sales Tax(Amendment) Bill 2019, were passed in the House ofRepresentatives on 8 April 2019.

The highlights of the proposed amendment Bills are discussedin the succeeding pages. A follow-up tax alert will be issuedonce significant updates are available.

Indirect Tax Highlights

Amendment Bills 201918 April 2019

The Ministry of Finance (“MOF”)tabled the following amendmentBills for first reading in Parliamenton 3 April 2019:

► Service Tax (Amendment) Bill 2019

► Sales Tax (Amendment) Bill 2019

► Free Zones (Amendment) Bill 2019

► Excise (Amendment) Bill 2019

► Customs (Amendment) Bill 2019

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Indirect Tax Highlights | Amendment Bills 2019 18 April 2019

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Based on the Service Tax (Amendment) Bill 2019, the Service Tax Act 2018 is proposed to be amended to includethe relevant provisions with respect to the charging and levying of service tax on digital services provided byforeign service providers to consumers in Malaysia which, as announced in the Budget 2019, are intended to beeffective on 1 January 2020.

Service tax to be imposed on digital services provided by foreign service providers toconsumers in Malaysia

Sales Tax (Amendment) Bill 2019Service Tax (Amendment) Bill 2019

Key highlights► The scope of the service tax will be expanded to include the provision of digital services by foreign

service providers to consumers in Malaysia, which will require the foreign service providers to registerwith the Royal Malaysian Customs Department (“RMCD” or “Customs”) and account for service taxaccordingly.

► The definitions of the terms “designated area” and “special area” are proposed to be amended toinclude Pangkor and a petroleum supply base licensed under section 77B of the Customs Act 1967,respectively.

► Subject to the approval and conditions of the Director General (“DG”) of Customs, a registered personmay account for service tax at the time when the invoice is issued for the provision of the services,instead of when the payment is received.

► The DG may offset any amount due and payable by the taxpayer under the relevant Acts (i.e., ServiceTax Act 2018, Service Tax Act 1975, Sales Tax Act 2018, Sales Tax Act 1972, Goods and Services TaxAct 2014, Customs Act 1967 and Excise Act 1976) against any amount of service tax refundable to thesaid taxpayer under the Service Tax Act 2018.

Key considerations► Foreign service providers who provide digital services to consumers in Malaysia are recommended to

review their current and future digital service offerings and pricing strategy, reassess business viability,and inform relevant stakeholders of the changes in the legislation. Foreign service providers should alsoensure that they are kept updated of the relevant developments in respect to this proposed amendmentand be able to comply with the service tax obligations in Malaysia.

► Where applicable, businesses should consider the business flows and service tax implications of theproposed amendments to treat Pangkor and a petroleum supply base as a designated area (“DA”) and aspecial area (“SA”) respectively. This is to ensure that service tax is accounted for correctly on thetransactions once the proposed amendment becomes effective.

► Service tax-registered persons may opt to revisit their internal processes and assess whether it wouldbe more practical to account for service tax at the time of issuance of invoice, instead of upon receipt ofpayment. Once the proposed amendment becomes effective, an application can be made to the DG ofCustoms in this respect.


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In relation to the above, a new section in the Service Tax Act is proposed to be introduced to provide for bothterritorial and extra-territorial applications of the said Act and its subsidiary legislation. This would mean the lawwill apply to any person outside of Malaysia, if the person is a foreign service provider of digital services toconsumers in Malaysia or is registered under the Act as a foreign registered person.

Other relevant provisions of the said amendment Bill, with specific regard to digital services, are discussed below: -

The definitions of the terms “digital service”, “foreign service provider” and “consumer” for service tax purposesare provided as follows:

► “Digital service” means any service that is delivered or subscribed over the internet or other electronicnetwork and which cannot be obtained without the use of information technology and where the delivery ofthe service is essentially automated.

► “Foreign service provider” means any person who is outside Malaysia providing any digital service to aconsumer and includes any person who is outside Malaysia operating an online platform for buying andselling goods or providing services (whether or not such person provides any digital services) and whomakes transactions for provision of digital services on behalf of any person.

► “Consumer” means any person who fulfills any two (2) of the following:

(a) Makes payment for digital services using a credit or debit facility provided by any financial institution orcompany in Malaysia

(b) Acquires digital services using an internet protocol address registered in Malaysia or an internationalmobile phone country code assigned to Malaysia

(c) Resides in Malaysia


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Imposition of service tax on digital services

Service tax on digital services, which is expected to be at the rate1 of 6%, shall be charged and levied on the valuecharged by the foreign registered person to any consumer. The service tax chargeable on the digital serviceprovided to the consumer shall be due at the time the payment is received by the foreign registered person.

Registration of foreign digital service providers for service tax purposes

Any foreign service provider who provides any digital service to a consumer is liable to be registered when theannual turnover of the digital services exceeds the prescribed threshold. Although the amendment Bill does notstate the prescribed registration threshold, it is expected to be at RM500,000.

The foreign service provider who exceeds the prescribed registration threshold shall apply to the DG of Customs forregistration in the prescribed form not later than the last day of the month following the month in which theregistration threshold is exceeded. The DG shall register the foreign service provider with effect from the first dayof the month following the month in which the application is made, or from such earlier date as the DG maydetermine, but such date shall not be earlier than the date the foreign service provider becomes liable to beregistered.

Filing of returns and payment of the related service tax due

The foreign registered person is required to file quarterly returns [i.e., a period of three (3) months] and pay therelated service tax due, not later than the last day of the month following the end of the quarterly taxable period towhich the return relates to.

Similar to the existing provisions in the service tax legislation, offences and penalties will be provided for on thefailure to file the returns and/or pay the service tax due and payable by the foreign registered person within thestatutory deadline (e.g., a maximum of 40% penalty may be imposed, where no prosecution is instituted, for anylate payment of the service tax due).

Issuance of invoice

Every foreign registered person who provides any digital service shall issue an invoice or a document (electronicallyor in paper form) containing the prescribed particulars to the consumer in respect of the transaction. However, thedetails of the prescribed particulars of such invoice or document are not stated in the amendment Bill.

Transitional provisions for digital services

Any foreign service provider who provides digital services before the effective date (i.e., expected to be on 1January 2020) and is liable to be registered, shall apply for service tax registration three (3) months before theeffective date. The registration will be effective from the said date or from any later date as the DG may determine.

Where any digital service is provided before the effective date, and such provision of digital services spans after theeffective date, service tax shall be charged on the proportion of the digital service which is attributed to the periodafter the effective date. However, if any payment is received before the effective date in respect of the digitalservices to be provided on or after the said date, no service tax shall be charged on the payment received.

1 The Minister may, by order published in the Gazette, fix the rate of service tax on digital services in accordance with subsection10(2) of the principal Act.


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It is proposed in the Service Tax (Amendment) Bill 2019 for Pangkor to be treated as a designated area for servicetax purposes. The term “Pangkor” shall pertain to Pangkor Island, Mentagor Island, Giam Island, Simpan Island,Tukun Terindak Island, Pelanduk Island, Anak Pelanduk Island, Landak Island, Batu Orang Tua and Batu Jambal.

Further, in addition to free zones, licensed warehouses and licensed manufacturing warehouses, and the jointdevelopment area, it is proposed that a petroleum supply base licensed under section 77B of the Customs Act 1967would also be considered a SA for service tax purposes.

A new subsection will be introduced wherein the DG of Customs may, upon application in writing by any registeredperson and subject to conditions as the DG may deem fit, grant approval to the registered person to account forservice tax on the taxable services provided at the time the invoice is issued, instead of upon receipt of thepayment for the said services.

A new section will be introduced to empower the DG to offset any amount due which the taxpayer has failed to pay,against any amount of service tax refundable under the Service Tax Act 2018.

The amount due and payable, against which any service tax refunds may be offset, pertains to any tax or duty dueand payable, any surcharge accruing, or any penalty, fee or other money payable under the following Acts (i.e.,Service Tax Act 2018, Service Tax Act 1975, Sales Tax Act 2018, Sales Tax Act 1972, Goods and Services Tax Act2014, Customs Act 1967, and Excise Act 1976).

It is proposed that the invoice shall be issued by the registered person within one (1) year from the date the taxableservice was provided or such extended period as may be approved by the DG.

A new subsection will be introduced to empower the DG, upon application in writing by a registered person, toapprove the service tax in respect of taxable services provided by a registered person to be due at the time theinvoice is issued. The approval granted may be subject to conditions as the DG deems fit.

Section 11(2) of the Service Tax Act 2018 is proposed to be amended to state that where the whole or any part ofthe payment for any taxable service provided by the registered person is not received from the customer within aperiod of twelve (12) months from the date the taxable service is provided (previously from the date of the invoice),the service tax shall be due on the day following that period of twelve (12) months.

Where a taxable service is provided by a taxable person, and the payment for such service is made through anymachine or device operated by coins, tokens or the like, the service tax required to be accounted for shall be due on

Inclusion of “Pangkor” and a “petroleum supply base” in the definition of DA and SA,respectively, for service tax purposes

Accounting for service tax upon issuance of invoice, instead of when payment is received

Offsetting of any tax due and payable by a taxpayer against any service tax refunds

Issuance of invoice

Service tax due after twelve (12) months from date of service, when payment is not received

Service tax on taxable services where payment is made via any machine or device operatedby coins, tokens or the like


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the day when the coins, tokens or the like are collected from such machine or device. Further, the amount ofpayment shall include the amount of service tax chargeable.

A new section is proposed to be introduced to provide for the applicable periods of imprisonment in relation to thenon-payment of fines under the Service Tax Act 2018, as follows:

Amount of fine Maximum period of imprisonmentDoes not exceed RM 5,000 Two (2) monthsFrom RM 5,001 to RM 10,000 Four (4) monthsFrom RM 10,001 to RM 20,000 Six (6) monthsMore than RM 20,000 Additional two (2) months, for every

subsequent RM 10,000

A new section will be introduced which provides that any summons issued by a court against any person inconnection with any civil or criminal proceedings under the Service Tax Act 2018 may be served on the personnamed therein:

(a) By delivering the summons to the person or any adult member of his family or any of his servants residingwith him at his usual or last-known place of residence

(b) By leaving the summons at his usual or last-known place of residence or business in an envelope addressedto the person

(c) By sending the summons by registered post addressed to the person at his usual or last-known place ofresidence or business or

(d) Where the person is a company, a limited liability partnership, a firm, a society, an association or otherbody of persons, by delivering the summons or sending the summons by registered post addressed to thesecretary or other like officers of the company, limited liability partnership, firm, society, association orother body of persons, at its registered office or principal place of business

Period of imprisonment for non-payment of fines

Service of summons


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“Designated areas” means Labuan, Langkawi, Tioman and Pangkor. The Bill further clarifies that Pangkor includesPangkor Island, Mentagor Island, Giam Island, Simpan Island, Tukun Terindak Island, Pelanduk Island, AnakPelanduk Island, Landak Island, Batu Orang Tua and Batu Jamba, for Sales Tax purposes.

“Special areas” means any free zone, licensed warehouse and licensed manufacturing warehouse, the JointDevelopment Area, and a petroleum supply base licensed under section 77B of the Customs Act 1967.

For petroleum, “manufacture” means the process of refining that includes the separation, conversion, purificationand blending of refinery streams or petrochemical streams.

The valuation of imported taxable goods, as stated in the Sales Tax Act 2018, will be aligned with the value providedin the Customs (Rules of Valuation) Regulations 1999 under the Customs Act 1967.

Amendments to the definitions of the terms “designated areas”, “special areas” and“manufacture”

Valuation of imported taxable goods

Key considerations► Impacted companies will need to revisit any business transactions they may have relating to Pangkor or

any petroleum supply base licensed under section 77B of the Customs Act 1967 as these have beenindicated as DA or SA respectively, which will affect the Sales Tax treatment.

► Companies involved in petroleum refining should review this activity as the definition of “manufacture”has been expanded to include this as being subject to tax.

Sales Tax (Amendment) Bill 2019

Key highlights► The definitions of “designated areas” and “special areas” are proposed to be extended to include Pangkor

and petroleum supply bases licensed under section 77B of the Customs Act 1967 respectively.► The definition of “manufacture” in relation to petroleum is further clarified to pertain to the process of

refining, which includes the separation, conversion, purification and blending of refinery streams orpetrochemical streams.

► The DG may offset any amount due and payable by the taxpayer under the relevant Acts (i.e., Service TaxAct 2018, Service Tax Act 1975, Sales Tax Act 2018, Sales Tax Act 1972, Goods and Services Tax Act2014, Customs Act 1967 and Excise Act 1976) against any amount of sales tax refundable to the saidtaxpayer under the Sales Tax Act 2018.


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A new section will be introduced to empower the DG to offset any amount due which the taxpayer has failed to pay,against any amount of sales tax refundable under the Sales Tax Act 2018.

The amount due and payable, against which any sales tax refunds may be offset, pertains to any tax or duty dueand payable, any surcharge accruing, or any penalty, fee or other money payable under the following Acts (i.e.,Service Tax Act 2018, Service Tax Act 1975, Sales Tax Act 2018, Sales Tax Act 1972, Goods and Services Tax Act2014, Customs Act 1967, and Excise Act 1976).

A new subsection will be introduced to clarify the existing provision and to empower the DG to approve anapplication for a deduction of sales tax by registered manufacturers. This subsection will be amended to provideclarity on the taxable goods purchased by any registered manufacturer (i.e., raw materials, components, or packingand packaging materials) and the percentage of sales tax (i.e., instead of the amount of sales tax) to be deducted inrespect of taxable goods purchased by any registered manufacturer.

A new section will be introduced to include the period of imprisonment in relation to the non-payment of finesunder the Sales Tax Act 2018, as follows:

Amount of fines Maximum period of imprisonmentDoes not exceed RM 5,000 Two (2) monthsFrom RM 5,001 to RM 10,000 Four (4) monthsFrom RM 10,001 to RM 20,000 Six (6) monthsMore than RM 20,000 Additional two (2) months, for every

subsequent RM 10,000

A new section will be introduced detailing the offences and penalties with respect to evasion of sales tax on taxablegoods which are imported into Malaysia.

Any person with the intent to evade or to assist any other person to evade sales tax on the importation of taxablegoods, commits an offence and shall be liable to a fine or imprisonment, or to both, as described below.

Offences Fines ImprisonmentFirst offence Minimum

► 10X sales tax amount or RM50,000 (whichever is higher)Maximum

► 20X sales tax amount or RM500,000 (whichever is higher)

≤ five (5)years

Secondoffence, or anysubsequentoffence

Minimum► 20X sales tax amount or RM100,000 (whichever is higher)

Maximum► 40X sales tax amount or RM1,000,000 (whichever is higher)

≤ seven (7)years

Offsetting of unpaid tax due to RMCD against refund or drawback

Application for deduction of sales tax by registered manufacturers

Period of imprisonment for non-payment of fines

Evasion of sales tax on imported taxable goods


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“Principal customs area” means any part of Malaysia, excluding a free zone, Labuan, Langkawi, Tioman andPangkor. It is further clarified that Pangkor includes Pangkor Island, Mentagor Island, Giam Island, Simpan Island,Tukun Terindak Island, Pelanduk Island, Anak Pelanduk Island, Landak Island, Batu Orang Tua and Batu Jambal.

“Commercial activity” includes trading (excluding retail trade), breaking bulk, grading, repacking and relabeling.Note that the Bill has proposed for the removal of transit from the definition of commercial activity.

The Bill further proposes to include the definition of “owner” in relation to goods, including any person being orholding himself out to be the owner, importer, exporter, consignee, agent or person in possession of, or beneficiallyinterested in, or having any control of, or power of disposition over, the goods.

Amendments to the definitions of the terms “principal customs area”, “commercial activity”and “owner”

Key highlights► The definitions of principal customs area (“PCA”) and “commercial activity” are proposed to exclude Pangkor

and transit respectively.► The responsibility of the owner of the goods / operator of a shop or warehouse, other building, place or

premises in a free zone (“FZ”) will be introduced.► The authorities’ power to approve the erection of a building and other structures, and prohibit any person

from entry into / to reside within both a free commercial zone (“FCZ”) and a free industrial zone (“FIZ”) isproposed to be expanded. Relevant saving provisions in relation to the above will also be introduced.

Free Zones (Amendment) Bill 2019

Key considerations► Impacted companies will need to revisit their business flows in relation to Pangkor as the same is proposed

to be excluded from the PCA. This will have implications in respect of Customs matters, including theduties / taxes applicable and the documentation and processes of bringing goods into or from Pangkor.

► Businesses should reassess their activities in the FZ as the Bill has proposed for the removal of transit fromthe definition of commercial activity.

► Businesses also need to consider transactions with respect to deemed exports and imports, to determinethe potential impact as it has been proposed that customs duty arising from such transactions, if any, shallbe payable.

► Businesses planning to construct a building in, enter into or reside within a FCZ must take intoconsideration the proposed amendments with respect to the extension of the authorities’ powers, andassess whether the same will have an impact on their business transactions.


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Customs duty, if any, arising from goods taken out from any part of the PCA into a FZ that are deemed to beexported from Malaysia, and goods brought out from the FZ into any part of the PCA that are deemed to beimported into Malaysia, shall be payable upon such exportation or importation.

A new section will be introduced to impose responsibility on any person who makes any declaration under the FreeZones Act 1990 or any corresponding regulations for the purposes of obtaining approval from the tax authority, togive a full and true account relating to the following: –

(a) The number and description of the packages(b) The description of the goods(c) The weight, measure or quantity of the goods(d) The value of all of the goods and(e) The country of origin of the goods

A new section will be introduced to impose responsibility on the owner of the goods / operator of a shop orwarehouse, other building, place or premises in a FZ, to account for all the goods kept at the said shop orwarehouse, other building, place or premises.

If an officer determines that the quantity of goods kept in the FZ is less than what should be kept there, it isdeemed that such goods have been illegally removed from the FZ to the PCA, and the owner / operator shall bedeemed to have knowledge of such removal, unless it is proved otherwise.

With that, the owner / operator of such goods would be liable to pay any taxes, duties, penalties and otherapplicable charges to the RMCD, unless the owner / operator is able to show to the satisfaction of the DG that suchdeficiency is caused by unavoidable leakage, breakage or other accident.

The existing penalty will be replaced with a more deterrent penalty to prevent the misuse and manipulation of thefacilities and customs procedures in the FZ. The offences below may amount to a fine or to imprisonment, or toboth.

Offences Fines ImprisonmentFirst offence Minimum

► 10X value of the goods or RM50,000 (whichever is greater)Maximum

► 20X value of the goods or RM500,000 (whichever is greater)

≤ five (5)years

Second offence,or any subsequentoffence

Minimum► 20X value of the goods or RM100,000 (whichever is greater)

Maximum► 40X value of the goods or RM1,000,000 (whichever is

greater)

≤ seven (7)years

Imposition of customs duty on any goods deemed exports from Malaysia and deemed importsinto Malaysia

Responsibility of making an accurate declaration to the tax authorities

Responsibility of the owner of the goods / operator of a shop or warehouse, other building,place or premises, in a FZ

Penalty/ Compounding of offences


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Where the value of the goods cannot be ascertained, the penalty may amount to a fine not exceeding RM500,000or to imprisonment for a term not exceeding five (5) years, or both.

The section on compounding of offences will be amended in relation to the following:

► Any senior officer of Customs may, with the written consent of the Public Prosecutor, compound any offencecommitted under this Act and prescribed by the Minister to be a compoundable offence, by making a writtenoffer to compound the offence on payment to the DG of an amount of money not exceeding 50% of the amountof the maximum fine for that offence.

► Note that currently, any person who is reasonably suspected of having committed any offence under this Actwhich is prescribed to be a compoundable offence, would be required to pay a sum of money not exceedingRM5,000.

A new section will be introduced which would require every person carrying out any activity in a FZ and who haspossession of documents and records pertaining to the activity of importation, exportation or manufacturing ofgoods, to preserve for a period of seven (7) years all documents and records relating to such activity.

Any person who is guilty of an offence under this new section shall be liable to a fine not exceeding RM50,000 or toimprisonment for a term not exceeding three (3) years, or both.

The authorities’ power to approve erection of buildings and other structures within the FIZ, and to prohibit any personfrom entry or to reside within the FIZ, is proposed to be extended to include FCZ.

With that, savings provisions will be introduced to allow for: -

(a) Any erection of buildings or other structures in a FCZ(b) Any person who has taken, held or enjoyed movable and immovable property of every description in a

FCZ and(c) Any person who has been residing within a FCZ

On the date of coming into operation of this Act,

(a) Such buildings or other structures may be continued and completed(b) Such person may continue to take, hold or enjoy such movable and immovable property (subject to

conditions) and(c) Such person may continue to reside within such FCZ (subject to conditions)

Any compounding of offences (which is still pending) shall be continued and concluded after the date of coming intooperation of this Act.

Record-keeping for a period of seven (7) years

Extension of the authorities’ power to approve the erection of buildings and otherstructures, and prohibit any person from entry into / to reside within both a FCZ and FIZ andthe relevant saving provisions


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With respect to the general penalty, it is proposed that the offender shall be liable, on conviction, to a fine notexceeding RM50,000 (increased from RM5,000), or to imprisonment for a term not exceeding three (3) years, or toboth.

Several sections of the Act will be amended and new sections introduced to expand the power of Customs officersin relation to the following:

► A senior officer of Customs will be allowed to access any shop or warehouse, or other building, place orpremises in the FZ for the purpose of carrying out any investigation, and if necessary, to use force.

► The Customs officer will be allowed to access other places or premises which are not specifically specifiedin the current provision for the purposes of a search, with or without a warrant.

► The Customs officer will be granted access to any recorded information or computerized data.

Introduction of the penalty of imprisonment and to increase the amount of fine

Expansion of the power of Customs officers


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For the purpose of levying excise duties, goods bona fide in transit, including goods for trans-shipment, shall not bedeemed to be imported unless they are or become un-excisable goods.

The Bill seeks to introduce a new subsection which provides that where a person has paid any of the excise duty,surcharge, penalty, fee or other money payable under the Act to which remission has been granted by the Minister,he shall be entitled to a refund of such excise duty, surcharge, penalty, fee or other money which had beenremitted.

Exemption from excise duty of goods bona fide in transit, including goods for trans-shipment

Refund of excise duty and other charges remitted by the Minister

Excise Tax (Amendment) Bill 2019

Key highlights► There will be no excise duty levied on goods bona fide in transit, including goods for trans-shipment.► The Bill seeks to clarify / revise the current excise duty procedures (e.g., refund process, drawback

procedure).► The Bill proposes to amend the current penalty provisions for certain offences.► The Bill also provides guidance on the relevant documents that need to be kept for the required seven years.► The process of warehousing imported goods is also clarified in the Bill, from depositing goods into

warehouses to removal of dutiable goods from excise control.

Key considerations► For companies to maintain their eligibility for drawback, they must reassess their current supply chain

management policies and guidelines to ensure compliance with the changes in the drawback provisions[e.g., change in the minimum value of drawback and in the period within which the goods should be re-exported).

► With the time-bar period being expanded to six (6) years, it is crucial for companies to note that potentialpenalties and tax collection for errors will also increase. As such, it is advisable to ensure that the currenttreatment, processes and procedures are compliant.

► Companies should consider a robust reporting and documentation management process to ensure that therecords relating to excise matters are properly kept for a period of seven (7) years, given the weight ofpenalties imposed on the failure to do so.


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Refund of overpaid or erroneously paid excise duty and other charges

The following additional provisions are included to clarify the process of claiming refunds of overpaid orerroneously paid duties or other charges:

► Where any excise duty has been paid under section 8a (i.e., payment of excise duty under protest) orpending the result of a review or appeal under section 47 (i.e., appeal to Customs Appeal Tribunal) of theExcise Act, no claim of refund shall be allowed unless such claim is made in the prescribed form within one(1) year from the date the decision on classification, valuation, review or appeal is made known to theclaimant; and

► A claim under this section shall be supported by such documents as required by the DG.

Remission of duty on goods damaged, destroyed or lost before removal from excise control

If any dutiable goods are damaged, destroyed or lost due to an unavoidable accident at any time before removalfrom excise control, the DG may remit the whole or any part of the excise duty payable thereon if notice in writingof such damage, destruction or loss due to an unavoidable accident, supported by sufficient documents, has beengiven at or before the time of such removal.

If any dutiable goods are damaged, destroyed or lost due to an unavoidable accident after the removal of suchgoods from excise control, no abatement of excise duty shall be allowed on such goods.

Payment of duty and other charges short-paid or erroneously refunded

Where excise duties and other charges have not been paid or have been erroneously refunded due to any reason,the person liable to pay such excise duties or other charges shall pay the deficiency or repay the excess amountpaid to him on demand, within six (6) years from the date on which excise duties or other charges were payable orthe refund was made, as the case may be.

In case of any form of fraud or default committed by or on behalf of any person, the DG can make a demand evenafter six (6) years for the unpaid or short-paid excise duty or other charges.

Drawback on imported goods

There are several proposed amendments regarding the drawback provisions on imported goods, as follows:

► The authority to identify the goods subject to claims of drawback before such goods are re-exported at thecustoms port or customs airport, is transferred from the senior officer of excise to the senior officer ofcustoms.

► Minimum value for drawback claims is increased, from fifty ringgit to two hundred ringgit.► Period during which the goods are to be re-exported for the purpose of drawback claim is shortened, from

twelve (12) months to three (3) months from the date the excise duty is paid.► Clarifies that the amount of drawback allowed shall be calculated at the rate of excise duty levied at the

time of import only

Note: The above proposed amendments only apply to the drawback of excise duty on imported goods other thanpersonal goods or other goods carried by visitors into Malaysia or samples carried by commercial travelers.

Clarifications / revisions on excise duty procedures


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Offsetting of unpaid tax due to RMCD against refund or drawback

A new section is introduced to allow the DG to offset a drawback or refund excise duties against any amount ofexcise duty, surcharge accruing, penalty, fee, customs duty, sales tax, service tax, goods and services tax or othermoney payable which a person has failed to pay.

Depositing goods into a warehouse

The Bill requires imported goods, on arrival or landing, to be deposited in a licensed warehouse, a warehouse orother place approved by the DG except where the duty payable has been paid; or the goods have been approved formovement in transit or trans-shipment under certain conditions; or the goods are imported by post, by road or bysea under certain conditions; or the goods are personal effects.

The DG may also require the goods, if it is necessary for the purpose of public interest, to be deposited in a licensedwarehouse or in a warehouse or other place approved by the DG. The goods to be deposited shall be deposited atthe expense of the owner and deemed under excise control. The goods shall not be removed except with thepermission of the proper officer of customs.

Removal of dutiable goods from excise control

The Bill seeks to prohibit the removal of dutiable goods from a licensed warehouse, a warehouse or any other placeapproved by the DG or excise control, except for transit to another licensed warehouse, warehouse or other placeapproved by the DG or in any other place under excise control or for manufacture in another place licensed undersection 20 of the Excise Act (i.e., license to distil, ferment or otherwise manufacture dutiable goods).

Every person is required to keep full, true and up-to-date records of all transactions which affect or may affect hisobligation on any matters under the Excise Act. The records to be kept shall include:

(a) All records of importation and exportation of goods including goods in transit and trans-shipment(b) All payments and bank records including letters of credit, fund transfer applications and debit advice(c) All accounting, management and financial records(d) Sales and purchase records including invoices, receipts, debit notes and credit notes(e) Other business records including sales, distribution and royalty contracts or agreements(f) Accounting charts, access codes, program documentation and system instruction manuals(g) Inventory records and(h) Any other records as may be determined by the DG

All records shall be kept for a period of seven (7) years [instead of six (6) years] from the latest date to which suchrecords relate.

A senior officer of excise may also require the person who had possession, custody or control of the goods,records, reports or documents which had been seized, detained or taken possession, to furnish him a translation inthe national language or English language within such period as the officer may specify, if the goods, records,reports or documents are in a language other than the national language or English language.

Warehousing of imported goods

Obligation to keep records relating to excise matters


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The Bill will exclude Pangkor from the PCA. With this amendment, Pangkor shall be regarded as a duty-free islandsimilar to Labuan, Langkawi and Tioman.

Various amendments in the penalty provisions will be introduced as summarized below:

Offence Current penalty provision Penalty provision based on theAmendment Bill

Default in payment ofany instalment for short-paid orerroneously refunded duty

If remains unpaid after 30-daynotice in writing or in theGazette, the DG may sell anygoods detained.

► Whole outstanding balance shallbecome due and payable on the duedate of any installment payment

► 10% surcharge of that outstandingbalance

► If remains unpaid after 30-day noticein writing or in the Gazette, the DGmay also seize or sell any goodsunder excise control belonging to theperson liable to pay such exciseduties or other charges.

Upon liquidation► Failure to give notice to the DG

(applicable for Licensees andImporters)

► Failure to furnish all relevantdocuments

► Failure to set aside sum out ofthe assets for payment ofexcise duty or

► Failure to give notice to the DGas an appointed receiver ofproperty

► Not exceeding RM10,000 ► Not exceeding RM50,000; and/or► Not exceeding three (3) years of

imprisonment

Failure to keep records relating toexcise matters

► Not explicitly stated ► Not exceeding RM100,000; and/or► Not exceeding five (5) years of

imprisonmentRefusal to give access to any placeof business


imprisonmentAny person who, without lawfulauthority, breaks, tampers with ordamages the thing or place underseal


imprisonment

Refusal to give access to recordedinformation or computerized dataupon inspection


imprisonmentFailure to return or dispose ofgoods seized under the excise Act

► Not exceeding RM10,000;and /or

► Not exceeding three (3)years of imprisonment

► Not exceeding RM100,000; and/or► Not exceeding five (5) years of

imprisonment

Failure to comply with theobligation of secrecy

► Not exceeding RM10,000;and /or

► Not exceeding RM500,000; and/or

Pangkor as a duty-free island

Revised penalty provisions


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Offence Current penalty provision Penalty provision based on theAmendment Bill

► Not exceeding five (5) yearsof imprisonment

► Not exceeding seven (7) years ofimprisonment

Any person who commits anoffence of communicatingconfidential information, documentor declaration relating to excise


imprisonment

Compound any offence which isprescribed to bea compoundable offence

► The DG may compound anyoffence under subsection74(1) by accepting from theperson reasonablysuspected of havingcommitted such offence, inthe case of dutiable goods,a sum of money which shallbe a sum not more than 10times the excise duty.

► Shall not exceed 50% of the amountof the maximum fine for that offence

Penalty on evasion of excise dutyand on illegal manufacture ofdutiable goods

► Not exceeding RM500,000;and/or

► Not exceeding five (5) yearsof imprisonment

► Not exceeding RM500,000; and/or► Not exceeding seven (7) years of

imprisonment

Penalty for offences relating todata stored in computers


imprisonmentPenalty for offences relating toclaims for drawbacks

► Not explicitly stated ► Not exceeding three (3) times theamount of duty or RM500,000,whichever is greater; and/or


Penalty for offences relating toclaims for refunds

► Not explicitly stated ► Not exceeding three (3) times theamount refunded in excess of theamount of the property sorefundable or RM500,000,whichever is greater; and/or


Penalty for possession of still, etc.without license

► RM2,000 – RM10,000;and/or

► Not exceeding three (3)years of imprisonment

► RM5,000 – RM20,000; and/or► Not exceeding three (3) years of

imprisonment

Imprisonment for non-payment offine

The period may extend to:► Two (2) months

(RM 50 and below fine)► Four (4) months

(RM51 – RM100 fine)► Six (6) months

(RM101 – RM200 fine)

Note: Two (2) additional monthsfor every RM100 after the firstRM200, with a max period of six(6) years

The Period may extend to:► Two (2) months

(RM 5,000 and below fine)► Four (4) months

(RM5,001 – RM10,000 fine)► Six (6) months

(RM10,001 – RM20,000 fine)

Note: Two (2) additional months forevery RM10,000 after the firstRM20,000, with a max period of six (6)years


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It is proposed that no customs duties shall be levied on imported goods bona fide in transit, including goods fortrans-shipment, unless the goods are or become un-customed goods.

The proposed introduction provides for allowable circumstances of transit and allows the DG to temporarilysuspend the payment of customs duties for the imported or exported goods in transit.

Proposed new Section 11A - no customs duty levied on goods bona fide in transit and trans-shipment

Introduction of Part IVA (Transit and Trans-shipment)

Customs (Amendment) Bill 2019

Key highlights► The Bill paves the way for improvement in customs procedures, in particular those relating to the payment

of customs duty, surcharge, penalty, fee or other money, submission of manifest, obligation to keep recordsof imported goods, movement of goods through transit and trans-shipment, warehousing of imported goodsand customs clearance.

► It also provides for the licensing of a petroleum supply base, for matters relating to origin of goods,preferential and non-preferential tariff treatments, for the exclusion of Pangkor from PCA, and for specialprovisions dealing with Pangkor as a duty-free island.

► The Bill also seeks to strengthen the enforcement powers of the officers of Customs and to increase penaltyfor offences.

Key considerations► For companies to maintain their eligibility for drawbacks, they must review their current supply chain

management policies and guidelines to ensure compliance with the changes in the drawback provisions[e.g., change in the minimum value of drawback and in the period within which the goods should be re-exported).

► With the time-bar period being expanded to six (6) years, it is crucial for companies to note that potentialpenalties and tax collection for errors will also increase. As such, it is advisable to ensure that the currenttreatment, processes and procedures are compliant.

► Companies should consider a robust reporting and documentation management process to ensure that therecords relating to customs matters are properly kept for a period of seven (7) years, given the weight ofpenalty imposed on the failure to do so.


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The introduction of Part IVA also provides for:

(a) Commencement and completion of transit procedures(b) Safeguards against any unauthorized interference with goods in transit(c) The determination of customs ports and airports for transit(d) The determination of routes for transits(e) Persons entitled to submit a declaration for transit(f) Movement of goods in transit(g) The empowerment of the DG to grant a license to any person to act as a licensed carrier subject to such

terms and conditions as he deems fit(h) Trans-shipment goods to be deposited in warehouses(i) Commencement and completion of trans-shipment procedures(j) Safeguards against any unauthorized interference with goods under trans-shipment(k) Non-compliance with completion periods(l) Delivery of goods for trans-shipment and loading on board outgoing vessels or aircrafts and(m) Responsibilities of licensee, owner or person handling goods for trans-shipment

Proposed amendments to Section 65

The introduction of subsection (1A) seeks to empower the DG to allow goods, other than goods liable to customsduty, to be kept in a licensed warehouse subject to conditions he deems fit.

The new subsection (5) provides that goods deposited in a licensed warehouse shall be cleared within two (2) yearsfrom the date of deposit.

Proposed amendments to Section 65A

Subsection (1) proposes for the issuance of a license to any person to carry on manufacturing processes and otheroperations in respect of the goods liable to customs duties and any other goods.

Introduction of new sections (65AA, 65AB and 65AC) in relation to licensed manufacturing warehouses

The new sections proposed under the provision for licensed manufacturing warehouses provide for the remission ofwaste or refuse from goods undergoing activities approved under subsection 65A(1); seek to deal with deficiency inquantity of dutiable goods at a licensed manufacturing warehouse; and require the need for the licensee to set upcustoms office and facilities within or at the perimeter of the licensed warehouse.

The proposed amendment provides the DG with the power to cancel a license to operate a duty-free shop and aninland clearance depot, in addition to withdrawing and suspending the license.

Proposed amendments to the provisions for licensed warehouses and licensed manufacturingwarehouses

Proposed amendments to the licensing of duty-free shops and inland clearance depots


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This new section proposes to allow the DG to approve any warehouse, not being a customs or licensed warehouse,or other place for depositing dutiable goods subject to such conditions as the DG may prescribe.

The DG may withdraw, suspend or cancel such approval.

The new subsections seek to clarify the types of goods required to be deposited in a customs or licensedwarehouse, or in a warehouse or other place approved by the DG, which includes imported goods for the purpose ofpublic interest.

Additional conditions are also proposed to be imposed to allow prohibited goods to be deposited in a customs orlicensed warehouse, or in a warehouse or other place approved by the DG, if the goods are accompanied by alicense, permit or approval required under the relevant laws and legislation.

Part VIIIA has been newly introduced in the CA to administer a petroleum supply base, as referred to under sections77A to 77F. These provisions provide for:

(a) The licensing of a petroleum supply base(b) The release of goods from a petroleum supply base(c) Exemption from payment of customs duty(d) Remission of customs duty and(e) Deficiency in quantity of dutiable goods at a petroleum supply base

The proposed amendment provides for the time or period for making a declaration in the prescribed forms to theproper officer of customs on import of dutiable goods.

New section Description

Section 78A

Form of import Time and period of payment of duties ofimported goods

Goods deposited in customs, orlicensed warehouse, or other placesapproved by the DG

Within 14 days from the date of declarationbeing approved, except for goods in transit

Goods not deposited in customs, orlicensed warehouse, or other placesapproved by the DG

Forthwith upon arrival of such goods

Goods entering the PCA from a FZ Forthwith upon arrival of such goods

New Section 65F in relation to deposit of goods in a warehouse or other place approved bythe DG

New subsections in Section 66 - changes in the provision of depositing goods intowarehouses

Introduction of Part VIIIA - provisions for the administering of a petroleum supply base

Proposed amendments to the declaration of dutiable goods on import


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New section Description

Goods imported by post Within 14 days from the date of declarationbeing approved

Section 78B Any importer of dutiable goods to make a declaration to the proper officer of customsbefore arrival of the goods to be imported

Section 78C Any imported goods which are not declared according to Section 78 shall be deemedto be abandoned.

The proposed amendment to the declaration of dutiable goods to be exported under subsection 80(1) provides adeletion of the proviso, which would no longer allow the exportation of any goods without prior payment of duty.

The amendment seeks to expand the scope of provisional declaration to include imported goods, in addition toexported goods, subject to the prescribed conditions. However, provisional declaration shall not be allowed if thegoods are subject to prohibition.

Introduction of Section 88A

The proposed section seeks to empower the DG to approve any person to defer the payment of customs duty dueand payable under section 78A and section 80 of CA.

Introduction of Section 88B

In addition, this section proposes to empower the DG to approve any person to be an accredited person and to allowsuch person to benefit from simplified procedures for customs clearance as determined by the DG, subject to suchterms and conditions as he deems fit.

Proposed amendment to Subsection 93(1)

Subsection 93(1)(b) is proposed to provide for an increase in the minimum value for drawback claims from RM50 toRM200, and subsection 93(1)(c) is amended to provide for a reduction in the period during which goods are re-exported for the purposes of drawback claims from twelve (12) months to three (3) months from the date upon whichthe customs duty was paid.

Furthermore, subsection 93(2) is amended whereby the amount of drawback shall be calculated only at the rate ofthe customs duty levied at the time of import.

Proposed amendment to disallow the exportation of goods without prior payment of duty

Proposed amendment in relation to provisional declaration

Introduction of new Sections 88A and 88B - General provisions

Proposed amendments to the provisions for refunds and drawbacks of duty


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New Section 99A

The introduction of this section seeks to allow the DG to offset a drawback or refund customs duties due againstany amount of customs duty (which includes any surcharge accruing, penalty, fee, excise duty, sales tax, servicetax, goods and services tax or other money payable) which a person has failed to pay.

The introduction of this Part addresses the origin of goods, and preferential and non-preferential tariff treatments.The proposed sections seek to provide that the producer or exporter may apply to the issuing authority for theissuance of a preferential and non-preferential certificate of origin. In addition, the importer, producer or exportermay apply to the authorized body to be registered as an approved person for the purpose of producing a declarationof origin.

Upon being registered as an approved person, the importer, producer or exporter shall produce a declaration oforigin for the purpose of claiming the preferential tariff treatment.

The amendments seek to clarify that Labuan, Langkawi and Tioman are to be considered not a place outsideMalaysia, but a place outside the PCA for Customs purposes.

This part proposes to provide for the provisions to exclude Pangkor from the definition of PCA.

The new proposed provisions cover the following matters:

(a) The treatment of customs duties in Pangkor relating to the importation, exportation and transportation ofgoods

(b) Providing for the application of the provisions, where goods are transported from Pangkor to the PCA orfrom PCA to Pangkor

(c) Declaration matters of goods transported from Pangkor into PCA(d) Dutiable goods to be deemed non-dutiable while in Pangkor(e) Collection of duties in Pangkor and(f) Application of drawbacks for goods transported to Pangkor

Widening of the statutory limitation period (time-bar)

The proposed amendment seeks to provide that where customs duty, surcharge, penalty, fee or other money has notbeen paid or has been erroneously refunded due to inadvertent error or misconstruction on the part of any officer ofcustoms, or due to unintentional misstatement as to the value, quantity or description by any person, the person isliable to pay the amount within six (6) years from the date on which the customs duty, surcharge, penalty, fee or

Introduction of Part XA - Origin of goods, and preferential and non-preferential tarifftreatments

Clarification of Labuan, Langkawi and Tioman being a place not outside Malaysia

Introduction of Part XIXD - Special provisions dealing with Pangkor

Proposed administrative amendments - Widening of the statutory limitation period; increasedpenalties; new offences subject to penalties; additional record requirements; wider scope ofpower exercisable by officers of Customs


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other money was payable or the deficient customs duty, surcharge, penalty, fee or other money was paid, or therefund was made, as the case may be.

Increase in penalties and the maximum jail term

The penalty provisions under the Customs Act 1967 (“CA”) is proposed to be amended to provide for an increase inthe fine and the maximum jail term. E.g. amendment to section 111A, by substituting “a fine of one thousand ringgitor imprisonment for a term not exceeding 12 months” with “a fine of one hundred thousand ringgit or imprisonmentfor a term not exceeding five (5) years”.

Introduction of new penalty provisions

The amendment seeks to introduce new penalty provisions which include new offences which would be subject topenalties, as follows:

New section PenaltySection 135A The penalty for offences relating to data stored in computersSection 135B The penalty for offences relating to claims for drawbacksSection 135C The penalty for offences relating to claims for refunds

Additional record requirements

The proposed amendments have further defined that records are required to be kept and preserved in Malaysia orotherwise, subject to the approval of the DG, for a period of seven (7) years from the latest date to which such recordsrelate. The records to be kept shall include:

(a) All records of importation and exportation of goods including goods in transit and trans-shipment(b) All payments and bank records including letters of credit, fund transfer applications and debit advice(c) All accounting, management and financial records(d) Sales and purchase records including invoices, receipts, debit notes and credit notes(e) Other business records including sales, distribution and royalty contracts or agreements(f) Accounting charts, access codes, program documentation and system instruction manuals(g) Inventory records and(h) Any other records as may be determined by the DG

Widened scope of power exercisable by the relevant officers

With the amendments to the CA, the power exercisable by the relevant officers in carrying out their duties andadministering the provisions in the CA has been widened.


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For more information, please contact the Indirect Tax Team of Ernst & Young Tax Consultants Sdn Bhd:

Yeoh Cheng Guan Aaron BromleyPartner and Malaysia Indirect Tax Leader Partner

[email protected] [email protected]

Shanmuganathan Govinda Konal Jalbir Singh RiarExecutive Director [email protected] [email protected]

Lindsey Cruickshanks Dora WongDirector Senior Manager


Germaine SL Ong Aljo BariasManager Manager


Poh Ai Yeen Stephen NguoiManager Manager


Aaron Kong Eugene ChauManager Manager


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