Boss! Having issues with sales tax? Getting your sales tax exemptions wrong? READ THIS to avoid unnecessary penalties!  

Hi Boss!👋

Do you know how sales and service tax (SST) works?

As a manufacturer, do you know if you have been using the correct tariff codes? Have you been applying sales tax on the correct items or items that have been exempted?

SST is applicable in any industry or business.

In this article, we will look at how sales tax is applied by using the food and beverage (F&B) industry as an example.

What is sales tax? What are the criteria that qualifies you to register for sales tax?

•  Sales tax is single stage tax applicable on registered manufacturers of taxable goods and on the importation of taxable goods into Malaysia.
• Businesses with a total sales value of taxable goods of more than RM 500,000 in a 12-month period need to register for sales tax through the MySST website.
• Sales tax rate is set at 5% or 10% or specifically exempted. These taxable goods are defined by the HS tariff code prepared and issued by the Royal Malaysian Customs Department (RMCD). 
• Sales tax registered businesses are also responsible to maintain proper records and account for the tax, by submitting bi-monthly returns to the RMCD.

Yummy Yummy in My Tummy: Sales Tax Straight Into Your Belly!

Let’s take Yummy House of Desserts as an example. 🍦🍰🍮

This is a chain of dessert outlets that is well-known for their special desserts using quality ingredients and has been a favourite among locals and tourists alike.

Cam Sdn Bhd provides the goods and ingredients to the dessert house and acts as their central kitchen. Although they serve as their central kitchen, both are a separate entity from each other.

To understand the co-relation between taxable goods and their tariff code, let’s refer to the taxable ingredients that Cam Sdn Bhd has in their central kitchen, provided to Yummy House of Desserts.

First, calculate the total sales of the taxable ingredients (sales revenue of individual items x 5%):

• Frozen sweet corn = RM 50,000 x 5% = RM 2,500
• Ice cream = RM 150,000 x 5% = RM 7,500
• Canned pineapples = RM 55,000 x 5% = RM 2,750
• Dried mixture of fruits and nuts = RM 50,000 x 5% = RM 2,500
• Fruit jam = RM 45,000 x 5% = RM 2,250
• Maple sugar = RM 60,000 x 5% = RM 3,000
• Pistachio nuts = RM 45,000 x 5% = RM 2,250
• Preserved strawberry = RM 30,000 x 5% = RM 1,500
• Frozen berries = RM 30,000 x 5% = RM 1,500

Total Sales Revenue = RM 515,000 

Total sales tax charges to Yummy House of Desserts = RM 25,750 

From the example above, we can conclude that the central kitchen, Cam Sdn Bhd is required to register for sales tax and subsequently charge sales tax to Yummy House of Desserts as the sales value of taxable products exceeded the RM 500,000 threshold.

The scenario above, is an example of how SST (sales and service tax) is applicable.

Cam Sdn Bhd (the registered manufacturer) imposes a 5% sales tax on Yummy House of Desserts, while Yummy House of Desserts charges a 6% service tax for services rendered to their customers. ✔️

As sales tax is charged at the point of importation or manufacture, there is no requirement to charge sales tax anymore when the goods move through the supply chain (eg from wholesaler to retailer and retailer to customers.) ✔️

Declare or Beware!

Boss, always keep this in mind; declare or beware!🚨

You stand to face serious penalty charges IF;

• You fail to register yourself for SST if you are required to. 🚨
• Fail to declare the full list of items/ingredients that you have with reference to the HS tariff codes prepared by the RMCD and;🚨
• Fail to make sales tax payment on time.🚨

There are several possible penalties if your business is late or fails to submit tax returns.

Failure to submit tax return penalty:

1. Fine of up to RM 50,000 OR;
2. Prison term up to 3 years OR;
3. Both of the above.

Failure to remit taxes collected by business penalty:

1. Fine of up to RM 50,000 OR;
2. Prison term up to 3 years OR;
3. Both of the above.

Late payment penalty:

• 10% of the amount of sales tax not paid after the last date of the first 30 days period.
• additional 15% of the amount of sales tax not paid after the last date of the second 30 days period.
• additional 15% of the amount of sales tax not paid after the last date of the third 30 days period.
• maximum penalty of 40% of the amount not paid from 91 days and above.

** Should you need any help with SST, we have a dedicated team of experts that will gladly help you maneuver through any difficulties you might encounter. Feel free to contact us to find out more.