Sales Tax Exemption under Schedule C Item 1
Here are the key points extracted from page 71, Schedule C Item 1 of the Sales Tax (Persons Exempted From Payment Of Tax) Order 2018:
Persons: Any registered manufacturer
Goods Exempted: Raw materials, components and packaging materials, excluding petroleum
Conditions:
- The Director General must approve goods.
- Goods must be imported or purchased from another registered manufacturer, a warehouse licensed under Section 65, or a licensed manufacturing warehouse under Section 65A of the Customs Act 1967
- Goods shall be used solely in the manufacturing of finished goods of the registered manufacturer.
- Registered manufacturers shall pay sales tax on any goods that cannot be accounted for
- Any other conditions imposed by the Director General
Certificate to be signed by: Registered Manufacturer
In summary, registered manufacturers can import raw materials, components and packaging sales tax-free if these are used to manufacture their finished products, subject to conditions as stated in Schedule C.
Disqualification of Sales Tax Exemption
Hence, based on Schedule C Item 1 of the Sales Tax (Persons Exempted From Payment of Tax) Order 2018, the following are circumstances under which a registered manufacturer may not qualify for the sales tax exemption on raw materials, components and packaging materials:
- If the goods are not approved by the Director General of Customs
- If the goods are not imported or purchased from another registered manufacturer, licensed warehouse under Section 65, or licensed manufacturing warehouse under Section 65A of the Customs Act 1967
- If the imported goods are not used solely in the manufacturing of the registered manufacturer’s own finished products
- If the registered manufacturer is unable to account for the goods when required by a senior customs officer
- If the registered manufacturer does not sign the required certificate to claim the sales tax exemption
- If the registered manufacturer breaches any conditions imposed by the Director General of Customs
- If the registered manufacturer disposes of the sales tax-exempt goods locally instead of using them in manufacturing
- If the registered manufacturer sells or transfers the sales tax-exempt goods without approval
In summary, the key reasons a registered manufacturer may not qualify for the sales tax exemption are failing to meet the conditions of the exemption, inability to account for goods, breaching imposed requirements, and improper disposal/sale of sales tax-exempt goods.
Consequences of Non-Compliance
If a registered manufacturer disposes of sales tax exemption goods locally instead of using them in manufacturing, the following consequences and actions will apply:
- The registered manufacturer would be in breach of the conditions of the sales tax exemption under Schedule C of the Sales Tax Order.
- Disposing of the sales tax exemption goods locally would be considered improper disposal unless approval is obtained from the Director General of Customs.
- The registered manufacturer may be subject to penalties for abusing the sales tax exemption.
- Future applications for sales tax exemptions may be rejected or additional conditions imposed.
- The registered manufacturer may be subject to greater scrutiny and audits by Customs.
Actions that should be taken:
- The registered manufacturer should voluntarily disclose the improper disposal to Customs and pay back any exempted sales tax using Borang SST-ADM.
- Submit the SST-ADM form and supporting documents to Customs, declaring the value of exempted goods disposed of and paying back the 10% sales tax.
- Maintain proper documentation like the tax payment receipt to show auditors.
- Take measures to improve inventory controls and oversight to prevent recurrence.
- Comply with any additional conditions that Customs may impose to regain trust in giving future exemptions.
Borang SST-ADM:
- This is a declaration form to pay sales tax, service tax or any other amount due under the Sales Tax Act 2018 or Service Tax Act 2018 to the Royal Malaysian Customs Department.
- It is used for paying sales tax for breach of exemption conditions under subsection 35(5) of the Sales Tax Act 2018. Details of the exemption, such as schedule, item number and certificate number, must be provided.
- It is also used for paying any other amounts due under the Sales Tax Act 2018 or Service Tax Act 2018, such as the disposal of raw materials by sale.
- The form requires the declaration of the tax or amount to be paid.
- An additional report in Appendix 1 must be submitted for breach of sales tax exemption conditions.
- For disposal of raw materials, components damaged packaging and scraps, an additional report in Appendix 2 must be submitted.
- Payment must be by cheque or bank draft made payable to the Director General of Customs and submitted to the controlling station for payment at authorised Customs collection centres.
- Submission of payment does not prevent Customs from auditing or taking legal action for any violations of the Sales Tax Act 2018, Service Tax Act 2018 or related laws/regulations.
In summary, the Borang SST-ADM is a declaration form for paying any taxes, amounts or monies due under the Sales Tax Act 2018 or Service Tax Act 2018 to avoid penalties. Supplementary reports (Lampiran) may be required. Proper procedures must be followed.
Reference:
Sales Tax (Persons Exempted From Payment Of Tax) Order 2018
Borang SST-ADM
Laporan CJ(P) Jadual C-01
Declaration Form for Breach of Exemption Conditions (Lampiran 1)
Statement on Disposal of Taxable Goods(Lampiran 2)
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