RMCD & Indirect Taxation

Sharing Knowledge Session

by

MOHAMAD FAIZ BIN BAHARIN

Asistant Director of Customs (WK44)
Royal Malaysian Customs Department, Johor.

18 OCTOBER 2022 (WEBEX) UPDATE UNTIL 17.10.2022

1 Structure of RMCD

2 Function of RMCD

3 Type of Taxes Governed

4 Free Trade Agreement (FTA)

5 Simulation of Tax Calculation

6 Study Case
7 Impacts & Roles
 Structure of RMCD
1 (Royal Malaysian Customs Department)
(1) STRUCTURE OF RMCD

A. Customs Division D. Compliance Division

G. Management Services & I. Information Technology

Human Resources Division Division

B. Internal Tax Division E. Technical Services Division

H. Akademi Kastam Diraja

RMCD J. Corporate Planning
Malaysia (AKMAL) Division

C. Enforcement Division F. Legal Division

K. Integrity Branch
2 Function of RMCD
(2) FUNCTION OF RMCD
Collect revenue, and
Memungut hasil negara,

Provide trade facilitation

RMCD
Memberi fasilitasi perdagangan, dan
Mission

Through enforcement of and compliance with

applicable law to spur economic growth,
maintain national security and public welfare.
Menguatkuasakan undang-undang demi kemakmuran
negara.
3 Type of Taxes Governed
(3) TYPE OF TAXES GOVERNED
Customs Duty GST / SST
Divided into :- SST were divided into :-
Import Duty Sales Tax & Services Tax.
Export Duty * GST were replaced by SST 2.0.

Excise Duty Tourism Tax

Goods subject to Excise Duty : Tax charged or levied on a tourist
staying at any accommodation
Sugar-sweetened beverages; Motor premises made available by an
vehicles; Alcoholic beverages; operator at the rate of tax fixed
Cigarettes (including tobacco, cigars, at RM 10.00 per room per night.
vape); Mahjong tiles; & Poker cards
(daun terup). SToDS
= Service Tax on Digital Services
Departure Levy * Service tax charged and levied on any
digital service provided by a foreign
Levy must be paid by a person who registered person to any consumer in
departs from Malaysia to overseas. Malaysia.
LAWS & REGULATIONS ADMINISTERED BY RMCD
Other Laws
- Countervailing and Anti-Dumping Duties Act
Excise Act 1993,
Departure 1976 - Law Reform (Eradication Of Illicit Samsu) Act
Levy Act 1976,
2019 - Anti-Trafficking In Persons And Anti-
Free
Smuggling Of Migrants Act (ATIPSOM) 2007,
Zone Act - Anti-Money Laundering, Anti-Terrorism
1990 Financing and Proceeds of Unlawful Activities
Service Tax Customs Act (AMLATFPUAA) 2001,
Act 2018 Act 1967 - And others.

Tourism Tax Functions of RMCD

• Revenue;
Act 2017 • Facilitation; &
Sales Tax
Goods • Enforcement.
Act 2018
Vehicle
Levy Act
RMCD Vision
Kastam Peneraju Kemakmuran Negara
1983 Customs Leading the Country’s Prosperity
CUSTOMS ACT & SUBSIDIARY LEGISLATION

Customs Customs Orders

Customs Act 1967 •
•
Customs Duties Order 2022
Regulations •
Customs Duties (Exemption) Order 2017
Customs (Prohibition of Imports) Order 2017
• Various amendment in • Customs (Prohibition of Exports) Order 2017
• Customs Regulations 2019
their sections of this Act • Customs (Compounding of
• Customs (Prohibition of Removal) Order
2014
from the time Offences) Regulations 2020 • Customs Duties (Langkawi) Order 2020
implemented until today • Customs (Import Licence Fee For • Customs (Values of Imported Completely
Motor Vehicle) Regulations 2015 Build-Up Motor Vehicles) (New) Order 2006
• Other Customs Orders..

Subsidiary legislation also after the Act

Mother’s act (akta ibu). and Regulations.
Primary law. Subsidiary legislation after the Must read together with the Act and
Read Section 11(1), 11A, 19 & 20 of Act. related regulations.
this Act – fix the customs duties, duty Must read together with the Act. Other than this, got also ‘Notifications
levied & calculation of customs duties. (Pemberitahuan)’ that were gazetted
under federal government law.
GST VERSUS SST 2.0
The Goods and Services Tax (GST) was introduced in Malaysia on 1 April
2015, replacing the Sales and Services Taxes (SST 1.0) [consists of
Sales Tax Act 1972 & Service Tax Act 1975]. Then, it was repealed on 31
August 2018 and revert to SST 2.0.
One type of indirect tax charged on consumption using value-added basis,
Sales and Services
through multi-stage transactions of business, at each level of production, Taxes (SST 2.0)
distribution, services until the product reach to final consumer.
SST 2.0 is composed of Sales Tax Act 2018 & Service Tax Act
Goods and Services 2018. Come into operation on 1 September 2018 to replace GST.
Taxable commodities manufactured or sold in Malaysia, as well as
Tax (GST) taxable items imported into Malaysia, are subject to sales tax,
while service tax is only levied on taxable services provided in
Malaysia and on imported services (subject to service tax listed),
but not charged on exported services. Single-stage levy.

Threshold: RM 500,000.00 Threshold: RM 500,000 / RM 1,500,000.00

Rates : SR (6%), ZR (0%), ES Rates : 5%, 6%, 10% or specific rates, RM 25.00

GST return : monthly or quarterly basis SST return : two-monthly basis

FACILITATION UNDER CERTAIN TAX LAWS
 Licensed warehouse
CUSTOMS ACT 1967
 Customs warehouse
SALES TAX 2018
 Licensed manufacturing warehouse (LMW)
 Duty Free Shop
 Transhipment / Partial shipment (for port or airport)  Exemption
 Authorized Economic Operator (AEO)  Bad debts
 Designated areas / Special areas  Designated areas / Special areas
 Exemption
 ASEAN Customs Transit System (ACTS)
 Free Zones
 e-PAM (Electronic Pre Alert Manifest)  Licensed manufacturing warehouse (LMW)
 Pre-Arrival Processing (PAP)

 Free commercial zone  Exemption

 Free industrial zone  Bad debts
 Exemption  Designated areas / Special areas
 Branch / Division registration

FREE ZONE ACT 1990 SERVICE TAX 2018

WHAT IS… CLASSIFICATION? VALUATION?
 Goods are classified into respective product categories which
are referred to as Customs tariff code, or classifications.
VALUATION
 The objective is to determine the correct tariff rates for the  Customs valuation is the process where Customs
assessment of duties and taxes (such as import/export duty,
authorities assign a monetary value to a good or service for
excise duty and GST/SST on import), and also whether the
the purposes of import or export, as a means of protecting
products are fall under Customs (Prohibition of Imports) Order
tariff concessions, revenue for the governing authority,
or not.
implementing trade policy, and protecting public health and
 The duty rates are determined according to the class of goods
safety.
under the HS commodity system, irrespective of the value of  According to the WCO, customs value of goods for the
goods.
purposes of levying ad valorem duties of Customs. Ad
 The framework for classifying goods is developed and
valorem duties are duties that are calculated based on the
maintained by the WCO, through the International Covention
value.
on the Harmonised Commodity Description and Coding  Referring to the Article 1 of GATT 1994 :-
System which is commonly referred to as the Harmonised
System or HS. The HS is a universal economic language and
The customs value of imported goods shall be the
code for goods, and an indispensable tool for international
transaction value, that is the price actually paid or
trade.
payable for the goods when sold for export to the
 It is widely used by governments, international organisations
country of importation adjusted in accordance with the
and private sector for the purposes such as internal taxes,
provisions of Article 8, provided with several
trade policies, monitoring of controlled goods, rules of origin,
conditions. (please refer to the WCO agreement of GATT
transport statistics, price monitoring, economic analysis, etc.
1994 & RMCD laws for further reading)
CLASSIFICATION
4 Free Trade Agreement (FTA)
(4) FREE TRADE AGREEMENT (FTA)

Free Trade Agreement (FTA) or treaty is an agreement according to

international law to form a free-trade area between the co-operating
states.
FTAs, a form of trade pacts, determine the tariffs and duties that
countries impose on imports and exports with the goal of reducing or
eliminating trade barriers, thus encouraging international trade. Such
agreements usually “center on a chapter providing for preferential tariff
treatment”, but they also often “include clauses on trade facilitation, and
rule-making in areas such as investment, intellectual property,
government procurement, technical standards, sanitary and
phytosanitary issues”.
(4) FREE TRADE AGREEMENT (FTA)
(4) FREE TRADE AGREEMENT (FTA)

FTAs differ from customs unions. Parties to an FTA maintain independence to set their own tariffs on imports from non-parties. By
contrast, all signatories of a customs unions commit to apply the same external tariff to non-signatories.

FTAs do not prevent governments from regulating in the public interest – for example; to protect consumers, the environment, animal
welfare, health and safety. Equally, trade agreements do not require governments to privatise any service or prevent governments from
expanding the range of services they supply to the public.
(4) FREE TRADE AGREEMENTS (FTAs) References: MITI FTA website update until 17.10.2022
JKDM website update until 30.9.2022
Malaysia has signed 17 FTAs and implemented 16 FTAs (7 bilateral FTAs & 9 regional FTAs).
There is 1 FTA has signed but pending ratification and entry into force :- (1) Comprehensive and Progressive Agreement for Trans-Pacific Partnership
(CPTPP). Latest news: will come into effect on 29 November 2022. [Link https://www.theedgemarkets.com/article/cptpp-will-come-effect-malaysia-nov-29-says-azmin &
https://www.theedgemarkets.com/article/malaysia-ratifies-cptpp]
Meanwhile, there is 1 FTA currently negotiated : Malaysia – European Free Trade Association Economic Partnership Agreement (MEEPA).
BILATERAL FTAS REGIONAL FTAS

FTA Date of Entry into FTA Date of Entry into

Force (EIF) Force (EIF)

Malaysia – Japan Economic Partnership Agreement (MJEPA) 13 July 2006 ASEAN Free Trade Area (AFTA) / 1993 /
ASEAN Trade in Goods Agreement (ATIGA) 17 May 2010

Malaysia – Pakistan Closer Economic Partnership Agreement 1 January 2008 ASEAN – China Free Trade Agreement (ACFTA) 1 July 2003
(MPCEPA)

Malaysia – New Zealand Free Trade Agreement (MNZFTA) 1 August 2010 ASEAN – Korea Free Trade Agreement (AKFTA) 1 July 2006

Malaysia – India Comprehensive Economic Cooperation 1 July 2011 ASEAN – Japan Comprehensive Economic Partnership (AJCEP) 1 February 2009
Agreement (MICECA)

Malaysia – Chile Free Trade Agreement (MCFTA) 25 February 2012 ASEAN – Australia – New Zealand Free Trade Agreement 1 January 2010
(AANZFTA)

Malaysia – Australia Free Trade Agreement (MAFTA) 1 January 2013 ASEAN – India Free Trade Agreement (AIFTA) 1 January 2010

Malaysia – Turkey Free Trade Agreement (MTFTA) 1 August 2015 ASEAN – Hong Kong Free Trade Agreement (AHKFTA) 13 October 2019

Developing Eight (D-8) Preferential Tariff Agreement (PTA) 20 July 2006*

[D8 members = Malaysia, Indonesia, Turkey, Iran, Nigeria,
Bangladesh, Egypt & Pakistan]

Regional Comprehensive Economic Partnership Agreement 18 March 2022**

(RCEP)
(4) FREE TRADE AGREEMENT (FTA) : RCEP
Reference: MITI FTA website update until 30.9.2022

FTAs differ from customs unions. Parties to an FTA maintain

independence to set their own tariffs on imports from non-parties. By
contrast, all signatories of a customs unions commit to apply the
same external tariff to non-signatories.

FTAs do not prevent governments from regulating in the public

interest – for example; to protect consumers, the environment,
animal welfare, health and safety. Equally, trade agreements do not
require governments to privatise any service or prevent governments
from expanding the range of services they supply to the public.
5 Simulation of Tax Calculation
(5) SIMULATION OF TAX CALCULATION ON GOODS
Identify the information given before do the tax
calculation. If don’t have given, need to find out.
Value? Quantity? Rate of currency (as
1. Identify importation occur or assessment)?

Identify and know the tariff code (TC) of goods.

2. Classification The TC will determine the rate of tax / duty
effective and permit needed (if there are).

3. Calculate Calculate the duty / tax accordingly.

Get the value of duty / tax accordingly.

4. Value of tax

Total up the duty and tax acquired.

5. Total up
(5) SIMULATION OF TAX CALCULATION ON GOODS

Normal Items Imported CBU Car

A B
Please refer next slide. Please refer the Excell
presentation.

Alcoholic Beverages Cigarettes

C D
Please refer other Power point Please refer other Power point
presentation. presentation.
Example of Normal Items.
1. Identify information & 2. Classification 3. Calculate
Data from the declaration of Customs Form No. 1 (K1) TC 9615.11.3000 are subject to 20% import duty & 10%
& inspection on goods :- sales tax. No AP or import permit needed.

Item description : Plastic combs Convert US $ to RM (at the time assessment). From the
Quantity : 1,000 kg SMK extraction data, 1 USD = RM 4.2531 (as at
Country of Origin : Indonesia 11.04.2022).
Value (FOB/CIF) : US $ 20.00 / kg So, USD 20.00 / kg X 4.2531 = RM 85.062.
TC : 9615.11.3000 (unit of quantity = kg) For 1000 kg = 85.062 x 1000 = RM 85,062.00.

Import duty : Total duty & tax need to be paid =

Value (FOB) x rate of duty Import duty + Sales tax =
PLASTIC COMB
= RM 85,062.00 x 20% = RM 17,012.40 RM 17,012.40 + RM 10,207.44 =
RM 27,219.84
Sales tax : [Value (FOB) + import duty] x rate of tax
= [RM 85,062.00 + RM 17,012.40] x 10%
= RM 10,207.44

4. Value of duty / tax 5. Total up

6 Study Case
(6.1) CASE : UNDER DECLARE TRANSACTION VALUE
1. Audited company (XYZ Sdn Bhd) were imported granite, marble and List of the imported goods as below :-
related equipments from China and Vietnam. Item Commodities Tariff Code Rate of Rate of Sales Tax Notes
Import Duty
2. XYZ Sdn Bhd was found to have made an incorrect declaration in
1. Granite 6802.93.9000 30% 10% Import duty
at a rate of
Customs Form No.1 by pledging a lower value of the imported goods, 2. Marble 6802.91.9000 25% 10% 0% under
ATIGA /
since the invoice value only states the value of the goods. 3. Marble Adhesive 3506.99.0099 25% 10% ACFTA.

4. Stone Tools 6804.22.0000 0% 10% -

3. The auditor’s review (audit period: December 2017 – July 2020) found
5. Mable Wax 3404.90.9000 0% 10% -
that there was a difference between the value of the declare and the
value of the actual payment made to suppliers abroad. Payment # Technique / methods involves :-
(a) Before audit
through telegraphic transfer (TT) made to overseas suppliers is based - get data of previous imported goods from Crystal Report
(risk management control modul inside Customs
on the sales contract between the company and the supplier stating
Information System, SMK)
the value of the goods, workmanship charge and freight. - cross-check with HS codes, rates of duty and sales tax of
imported goods
4. Since the company has admitted that there were mistakes made in (b) During audit
declaring the value of the goods during importation, all documents - examines every previous Customs Form No.1 with
purchase invoices and payment records to suppliers
regarding the importation were brought back to the office for further - also cross-checks with accounting record (purchase
review and calculation of the underpaid tax value. ledger) company
- interview company staff (accounting, logistics, HR,
manager, etc.)
(6.1) CASE : UNDER DECLARE TRANSACTION VALUE
5. Audit findings :-
- The auditee under-declared the actual value of the imported goods where the
value written on the Customs Form No.1 is not the actual value paid to the XYZ Sdn Bhd
(in Malaysia)
overseas exporters.
Invoice / BL / Packing
Tax Invoice / DO
List / TT / DA
- The overseas exporter (China) issues a commercial invoice with the price of the
goods only to the company for the purpose of declaring the importation. The
exporter then issues a sales contract to the company with the price of the goods, Forwarding Agent Oversea
plus with workmanship charge as well as the freight value. Later, the company
Prompt Suppliers
makes a TT payment to the overseas exporter according to the value in the Delivery Sdn from China /
sales contract after the goods are ready to be exported from China. Bhd Vietnam

- The overseas exporter (Vietnam) issues a sales contract with the estimated
SHIPMENT
value of the goods to the company, and this sales contract will be used for
import declaration. Auditee makes a deposit payment (approximately 30% of the
Transaction Diagram
actual value of the goods) to the exporter by TT. After the goods are ready for
export, the supplier issues a commercial invoice / proforma invoice to the auditee
to obtain the remaining 70% of the total value of the goods. The auditee settled
the payment by TT based on the value in the commercial invoice before the goods are exported.
(6.1) CASE : UNDER DECLARE TRANSACTION VALUE
5. Audit findings.. (continue) :-
- The audit officer uses the foreign currency exchange rates issued by RMCD
to calculate the actual value to be paid.
6. Offences section : Section 133(1)(a), Customs Act 1967
7. Results :
Bill of demand (BOD) which amount of RM 190,240.78 is issued to XYZ Sdn
Bhd, consists of GST import (RM 33,805.29) and SST import (RM 156,435.49).
Compound recommendation = None.
(6.2) CASE : SEIZURE OF COUNTERFEIT / UNCUSTOMED GOODS
 ZAM-ZAM WATER
 Link 1: https://www.bharian.com.my/berita/nasional/2022/08/993753/kastam-rampas-air-zamzam-dipercayai-palsu
 Link 2: https://www.bharian.com.my/berita/kes/2022/08/988651/kastam-rampas-air-zam-zam-barangan-kontraban-rm273-juta
 MEAT CARTEL
 Link 1: https://www.bharian.com.my/berita/nasional/2021/02/784580/kartel-daging-pengarah-pengurus-dan-syarikat-didakwa-bekal-
daging-tak
 Link 2: https://www.bharian.com.my/berita/nasional/2022/08/992564/kastam-rampas-rokok-arak-daging-rm386-juta
 IMPORTED VEHICLES WITHOUT APPROVAL PERMIT (AP)
 Link : https://www.bharian.com.my/berita/kes/2022/08/994244/kastam-rampas-50-kenderaan-tiada-ap-lebih-rm11-juta
 UNCUSTOMED GOODS
 Link 1: https://www.bharian.com.my/berita/nasional/2022/10/1007218/kastam-rampas-rokok-putih-tanpa-cukai-lebih-rm10j
 Link 2: https://www.bharian.com.my/berita/kes/2022/03/930037/6-kontena-minuman-keras-seludup-dirampas
 Link 3: https://www.bharian.com.my/berita/kes/2022/04/945535/minuman-keras-tembakau-diseludup-bersama-barangan-lain-elak-
dikesan
 DANGEROUS DRUGS
 Link : https://www.hmetro.com.my/mutakhir/2022/01/800972/kastam-rampas-248kg-ganja-disembunyi-dalam-kereta
7 Impacts & Roles
IMPACTS & ROLES OF RMCD AGENCY
COLLECT REVENUE (INDIRECT TAXES) PROVIDE TRADE FACILITATION
Direct taxes contributed to a major part of the
government’s total revenue each year. However, Malaysia is ranked 12th with 81.50 points amongst
indirect taxes collections for 2014 was 16.9%, which 190 global economies in the World Bank Doing
increased to 27.9% in 2017 from the total Federal Business 2020 report, recording an improvement
Government Revenue. from 15th position in the previous year.
Reference : Goods and Services Tax (GST) and Sales and Services Tax (SST): Reference: https://www.nst.com.my/business/2019/10/532837/malaysia-
Compliance Knowledge of Businesses in Johor Bahru, Malaysia. (2021). ranks-12th-world-banks-doing-business-report

For the purposes to spur economic growth, Facing this global challenge during COVID-19 pandemic, it is expected that
the movement of relief goods (supplies, medicines and medical
maintain national security and public welfare. equipment) and vaccines across borders will increase dramatically in that
period. Moreover, as the WHO notes in its 29 February 2020 Updated WHO
recommendations for international traffic in relation to COVID-19 outbreak,
“… restrictions may interrupt needed aid and technical support, may
disrupt businesses, and may have negative social and economic effects on
the affected countries.” It is critical that Customs administrations (RMCD)
Reference : Slide 6.2 – Seizure of Counterfeit / Uncustomed Goods; continue to facilitate, not only relief goods, but goods in general, to help
WCO – Enforcement & Compliance: Illicit Trade Report 2021. minimize the overall impact of the COVID-19 outbreak on our economies
and societies.

ENFORCEMENT AND COMPLIANCE OTHER ROLES & IMPACTS.

Inspirational Quotes..
QUIZ (TEST YOUR KNOWLEDGE / UNDERSTANDING)

LHDN vs RMCD

4 1 What is the differences

between us?

3 2
QUIZ (TEST YOUR KNOWLEDGE / UNDERSTANDING)

LHDN vs RMCD

4 1 What is the differences

between us?

SST vs GST

3 2
Comparison of the tax
system?
QUIZ (TEST YOUR KNOWLEDGE / UNDERSTANDING)

LHDN vs RMCD

4 1 What is the differences

between us?

Direct Tax vs Indirect Tax SST vs GST

3 2
What is the differences Comparison of the tax
between direct tax and system?
indirect tax?
QUIZ (TEST YOUR KNOWLEDGE / UNDERSTANDING)

Laws & Regulations LHDN vs RMCD

4 1
List type of taxes that governed What is the differences
by RMCD. between us?

Direct Tax vs Indirect Tax SST vs GST

3 2
What is the differences Comparison of the tax
between direct tax and system?
indirect tax?
 THANK YOU !
Royal Malaysian Customs Department

ALL THE BEST TO YOU!