Ultimate Guide to Customs Tariffs in Malaysia

Import tariffs and tariff rates significantly shape a country’s trade policy and economic landscape. They are instrumental tools for governments to regulate trade, protect domestic industries, and generate revenue. 

Malaysia, a Southeast Asian nation known for its dynamic economy and robust international trade, is no exception to this rule. 

This article comprehensively overviews Malaysia’s import tariffs and tariff rates, exploring their historical development, economic impact, and recent trends.

The Role of Import Tariffs in Malaysia’s Economy

Import tariffs in Malaysia serve several crucial roles in the nation’s economic framework. These roles can be broadly categorised into the following areas:

1. Revenue Generation: Import tariffs provide a significant source of revenue for the Malaysian government. The tariff income is used to fund various public services and development projects.
2. Protection of Domestic Industries: Tariffs protect domestic industries from unfair competition by foreign products. By imposing tariffs on specific goods, the government can create a level playing field for local businesses, encouraging their growth and development.
3. Trade Policy Flexibility: Import tariffs allow Malaysia to implement strategic trade policies that adapt to changing economic conditions and global trade dynamics. They offer a degree of flexibility in responding to financial challenges and opportunities.
4. Economic Diversification: Tariffs can promote economic diversification by encouraging investment in specific industries or sectors deemed essential for the country’s long-term development.

Recent Trends in Malaysian Tariff Policy

In recent years, Malaysia has undergone several developments in its tariff policy, driven by changing economic conditions and evolving trade dynamics.

1. ASEAN Integration: Malaysia, as a member of the Association of Southeast Asian Nations (ASEAN), has actively participated in the regional economic integration process. The ASEAN Economic Community (AEC) aims to create a single market and production base within ASEAN member states, which has led to the reduction of tariffs on intra-ASEAN trade.
2. Trade Agreements: Malaysia has been engaged in various trade agreements, including bilateral agreements with countries like Japan and China and regional agreements like the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). These agreements have reduced tariffs and increased market access for Malaysian goods.
3. Import Sales Tax: Malaysia introduced the Sales and Service Tax (SST) to replace the Goods and Services Tax (GST) in 2018. This transition impacted the taxation of imported goods by introducing import sales tax (IST) as part of the SST system.
4. Tariff Rationalization: The Malaysian government has been working on tariff rationalisation to simplify and streamline the tariff structure. This includes efforts to reduce the number of tariff lines and align tariff rates with national industrial policy objectives.

Types of Import Tariffs in Malaysia

Importers in Malaysia can expect to pay different tariffs when clearing customs for their imported goods. These tariffs are typically based on goods classification systems for customs purposes, such as the  Harmonized System (HS) codes. 

1. Import Duty:

• • Import or customs duty is a tax imposed on importing goods into Malaysia. It is calculated as a percentage of the customs value of the imported goods. The customs value includes the cost of the goods, shipping, insurance, and any other charges incurred until the goods arrive in Malaysia.
  • Import duty rates can vary widely based on the HS code classification of the goods. Some goods may be subject to high import duty rates, while others may be duty-free. The ad valorem rates of import duties range from 2% to 60%. Raw materials, machinery, essential foodstuffs, and pharmaceutical products are generally non-dutiable or subject to duties at lower rates.

2. Excise Duty:

• • Excise duty is a specific tax imposed on certain goods, primarily those considered luxury items or products that pose health or environmental risks. Common goods subject to excise duty in Malaysia include tobacco products, alcoholic beverages, and motor vehicles.
  • The rates for excise duty are typically specific, meaning they are calculated based on quantities or units rather than the value of the goods.

3. Sales Tax:

• • Malaysia imposes a sales tax on the sale and import of certain goods, including manufactured and imported products. Sales tax rates can vary based on the type of goods. The rate of Sales Tax on low-value goods is 10%. The ad valorem rates are 5% or 10%, depending on the class of goods.
  • In some cases, certain goods may be exempt from sales tax, especially if they fall under specific categories or are subject to preferential treatment under trade agreements.

4. Service Tax:

• • Service tax is imposed on specific services, but it can also apply to services related to importing goods, such as customs brokerage and freight forwarding services.
  • Service tax rates may vary depending on the type of service provided.

5. Anti-Dumping and Countervailing Duties:

• • Malaysia may impose anti-dumping and countervailing duties on imported goods if they are found to be sold at unfairly low prices or subsidised by foreign governments. These duties are designed to protect domestic industries from unfair competition.
  • The rates for anti-dumping and countervailing duties are determined through investigations by the relevant authorities.

6. Preferential Tariff Rates:

• • Malaysia is a party to various regional and bilateral trade agreements that offer preferential tariff rates for goods imported from certain countries. These agreements, such as the ASEAN Free Trade Area (AFTA) and bilateral trade pacts, can significantly reduce or eliminate customs duties for eligible goods.
  • Importers should review the specific terms of these agreements to determine if their goods qualify for preferential rates.

7. Tariff Rate Quotas (TRQs):

• • TRQs are a mechanism that allows a specified quantity of certain goods to be imported at lower or zero tariff rates. In contrast, quantities exceeding the quota face higher tariffs. Importers must monitor and manage their imports to stay within TRQ limits.

Tariff Classification and Rates

Import tariffs in Malaysia are classified based on the Harmonized System (HS) code, a global standard for classifying products for customs and trade purposes. Each HS code corresponds to a specific product category, and tariffs are applied based on these codes. The Malaysian government revises tariff rates periodically, considering various factors, including economic conditions, trade agreements, and domestic industrial needs.

1. Tariff Categories: Import tariffs in Malaysia are categorised into several broad groups, including basic duty, import sales tax, and excise duty. Basic duty is the primary tariff rate applied to most imported goods, while import sales tax and excise duty are applied to specific categories of products.
2. Tariff Rates: The tariff rates in Malaysia can vary widely depending on the type of product, its origin, and the country’s trade agreements. Malaysia has entered several regional and bilateral trade agreements impacting tariff rates. The ASEAN Free Trade Area (AFTA) is one such agreement that has led to reduced tariff rates for intra-ASEAN trade. Here are the range of tariff rates in Malaysia and the types of goods they apply to. For the latest list, visit the JKDM HS Explorer.

• • Duty-Free: Some goods can enter Malaysia duty-free, meaning they are not subject to customs duties. This often applies to essential items, raw materials, and goods covered by specific trade agreements.
  • Low Tariff Rates: Many goods are subject to relatively low tariff rates, typically from 0% to 10%. These rates are often applied to goods that are essential, non-competitive with domestic industries, or covered by preferential trade agreements.
  • Moderate Tariff Rates: Certain goods face moderate tariff rates ranging from 10% to 20%. These rates may apply to goods that compete with domestic products but are not subject to high protectionist measures.
  • High Tariff Rates: Some goods, especially those that compete directly with domestic industries, may face high tariff rates, exceeding 20%. High tariffs are intended to protect domestic production.
  • Specific Tariffs: In some cases, specific tariff rates are applied, which are based on a fixed amount per unit of measurement (e.g., per kilogram or per unit). Specific tariffs are often used for certain agricultural and industrial products.

3. Preferential Tariff Rates: Malaysia provides preferential tariff rates to countries with trade agreements. These preferential rates are lower than the standard tariff rates and are designed to promote trade and economic cooperation with partner countries.

The Differences Between HS Codes and AHTN

Proper classification facilitates customs procedures, enables the collection of trade statistics and forms the basis for implementing trade policies. To this end, Malaysia has adopted two standardised classification systems – the Harmonized System (HS) code and the ASEAN Harmonized Tariff Nomenclature (AHTN).

Application and Usage of HS Codes and AHTN

1. International Trade:
   The HS code and AHTN are used in international trade to classify goods. This classification is vital for customs clearance, duty calculation, and determining applicable trade agreements and restrictions.
2. Customs Procedures:
   Customs authorities in Malaysia employ both systems to regulate the import and export of goods. The correct classification of goods is crucial for assessing customs duties and taxes.
3. Trade Agreements:
   HS and AHTN codes are employed in trade agreements to specify tariff rates, rules of origin, and other trade-related provisions. Malaysia’s participation in various trade agreements, such as ASEAN Free Trade Agreements (FTAs) and bilateral agreements, necessitates using these codes.

Critical Differences Between HS Codes and AHTN

Types of Import Tariff Exemptions in Malaysia

Import tariff exemptions in Malaysia refer to situations where certain goods or categories of goods are granted relief from or exemption from the payment of customs duties, import taxes, or tariffs when imported into the country. These exemptions are typically provided for specific reasons, such as promoting economic development, supporting certain industries, fulfilling international commitments, or addressing national priorities. 

1. Free Trade Agreements (FTAs): Malaysia is a party to several regional and bilateral FTAs, such as the ASEAN Free Trade Area (AFTA), the Malaysia-Australia Free Trade Agreement (MAFTA), and the Malaysia-Japan Economic Partnership Agreement (MJEPA). These agreements often include tariff reduction or elimination provisions on specified goods traded between the partner countries. Importers can claim these exemptions when importing goods that meet the eligibility criteria outlined in the respective FTAs.
2. Duty-Exempt Items for Personal Use: Some items imported for personal use or consumption may be exempt from customs duties. These exemptions are typically applied to personal effects, gifts, and luggage up to certain value thresholds and quantities. However, these exemptions have limits and conditions and do not apply to all goods.
3. Promotion of Specific Industries: The Malaysian government may grant import tariff exemptions to promote specific industries or sectors considered essential for economic development. This may include exemptions for machinery, equipment, or raw materials needed by these industries.
4. Humanitarian Aid and Relief Goods: Import tariff exemptions can be provided for goods intended for humanitarian aid, disaster relief, or charitable purposes. This helps facilitate delivering essential supplies to those in need during emergencies.
5. Research and Development: Certain goods used for research and development (R&D) purposes, especially in the scientific and technological fields, may be eligible for tariff exemptions to support innovation and knowledge development.
6. Special Economic Zones: Malaysia has established special economic zones (SEZs) and free trade zones (FTZs) where specific incentives, including import tariff exemptions or reductions, may attract foreign investment and promote economic activities within these zones.
7. Export-Oriented Industries: To encourage exports and enhance competitiveness, the government may grant tariff exemptions or preferential rates to goods produced by industries with a strong export focus.

Conditions and Application Process

Import tariff exemptions in Malaysia are subject to various conditions and eligibility criteria. Importers seeking exemptions must adhere to the following general process:

1. Eligibility Assessment: Determine whether the goods you intend to import meet the criteria for tariff exemption, such as qualifying under an FTA, belonging to a specific industry, or serving a humanitarian or R&D purpose.
2. Application: Apply for tariff exemption to the relevant authorities, such as the Royal Malaysian Customs Department. Provide all necessary documentation and information to support your claim.
3. Approval: Upon review and support of the application, the authorities will issue a certificate or documentation confirming the tariff exemption.
4. Compliance: Ensure compliance with all conditions and requirements associated with the exemption. Failure to meet these conditions may result in the revocation of the exemption and potential penalties.

Where to Find the HS Code Book for Malaysia

An HS  code book is a comprehensive publication or reference guide containing a detailed list of HS codes and their corresponding product descriptions and tariff rates. The most reliable and official source for HS codes is the Customs Department or relevant government agency in Malaysia. 

• HS Code Books and Publications: You can obtain HS code books and publications directly from the Malaysian Customs Department. These materials are valuable references for detailed classification. Or you can get a copy as a handy book from publishers.
• Malaysian Customs Department Website: Alternatively, the official website of the Malaysian Customs Department (Royal Malaysian Customs Department) often provides access to the latest HS code information, including searchable databases and tariff schedules. You can find the HS code database on the JKDM HS Explorer website. 

Common Errors when Applying HS Codes in Malaysia

1. Misinterpretation of Product Characteristics: One of the most common errors is misinterpreting the characteristics of a product and assigning it an incorrect HS code. This can occur due to a need for more understanding of the product’s composition, use, or technical specifications.
2. Using Outdated Codes: International authorities periodically update and revise HS codes. Using outdated codes can lead to customs issues, as regulations may have changed.
3. Not Consulting Official Sources: Relying on unofficial sources or online databases without cross-referencing with official sources can lead to inaccurate classifications.
4. Incorrect Documentation: Errors in customs declarations, such as incorrect HS codes, can result from incomplete or inaccurate documentation. Failure to provide accurate information can lead to customs delays and penalties.
5. Failure to Consider Country of Origin: The country of origin can impact the tariff rate and eligibility for preferential trade agreements. Please consider the country of origin to ensure correct tariff assessment.
6. Complex Products: Complex products with multiple components or functions may be subject to different HS codes for other parts. Misclassification of any part can lead to errors.

Potential Penalties and Consequences for HS Code Errors

1. Customs Delays: Incorrect HS codes can result in customs delays as customs authorities may need to verify the classification, leading to additional inspections and paperwork.
2. Overpayment or Underpayment of Duties: Misclassification can result in overpayment or underpayment of customs duties and taxes. Overpayment can increase the cost of imports, while underpayment may lead to penalties.
3. Penalties and Fines: Malaysia’s customs authorities can impose penalties and fines for incorrect classification, especially if they suspect the misclassification was deliberate or part of an attempt to evade duties.
4. Seizure of Goods: In severe misclassification or customs fraud, customs authorities may seize the goods, resulting in substantial financial losses for the importer.
5. Loss of Preferential Tariff Benefits: Malaysia participates in various trade agreements, and goods must meet specific criteria to benefit from preferential tariff rates. Misclassification can lead to the loss of these benefits.
6. Audit and Investigation: Importers who consistently make classification errors may be subject to customs audits and investigations, leading to increased scrutiny and potential legal actions.

Tips to Avoid HS Code Errors and Penalties

1. Consult with Experts: Seek advice from customs experts, trade consultants, or customs brokers knowledgeable about HS code classification.
2. Use Official Sources: Refer to official sources such as the Royal Malaysian Customs Department’s website or publications for the most accurate and up-to-date HS code information.
3. Review and Verify: Double-check and verify the accuracy of HS codes before completing customs declarations. Be thorough in your product research and classification.
4. Training and Education: Invest in training and education for your staff involved in customs compliance and import/export operations to ensure they understand HS codes and their implications.
5. Keep Records: Maintain accurate records of customs declarations, supporting documentation, and any communications with customs authorities.
6. Seek Legal Advice: If you face significant customs issues or penalties, consider seeking legal advice to understand your options and rights.

How Luwjistik Helps

Luwjistik is a logistics platform solution crafted to optimise operations and facilitate collaborations between businesses and a network of service providers. It provides an all-inclusive platform that simplifies your decision-making regarding customs tariff calculations, including duties and taxes, ensuring a seamless clearance process. 

Here’s how Luwjistik can assist you:

• Marketplace
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• L-Freight
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• Node Calculator
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