This article first appeared in The Edge Financial Daily on July 20, 2018

KUALA LUMPUR: All vehicles, be they completely built-up (CBU) or completely knocked-down (CKD), will be subject to a proposed sales tax from Sept 1, said the Royal Malaysian Customs Department.

Its director-general Datuk Seri Subromaniam Tholasy said this in response to media reports claiming that CKD cars, including sedans, four-wheel drives, station wagons and race cars, will be exempted from sales tax.

Subromaniam said the reports had misinterpreted the list of the proposed goods exempted from sales tax that was published on the department’s website yesterday.

“The items that had been listed as tax-exempt only referred to components that were related to the assembly of CKD [vehicles] only. When the vehicles are fully assembled from the CKD components that were imported earlier, the fully assembled vehicle will be subject to sales tax,” he said in a statement.

Under the proposed Sales Tax Act 2018, sales tax is charged on manufacturers who have reached a sales threshold of RM500,000 per annum, and on taxable goods imported into Malaysia. The rate for the sales tax has been proposed at 5% and 10%. The categories of goods for these rates will be announced later.

As for the Service Tax Act 2018, a fixed rate of 6% will be charged on the taxable services provided by a service provider for a period of 12 months that exceeds a threshold of RM500,000. At this point, the threshold applies to all service providers except for credit and charge card providers.

The list of taxable services included hotels, homestays and boarding houses; restaurants, hawkers and food trucks; and the gaming industry, which was not taxable under the old SST. This includes number forecast operators and casinos.

Customs deputy director for its goods and services tax (GST) division Nur Hanisah Dukes Abdullah said domestic air fares will also be subject to the sales tax and service tax (SST).

“If you buy a domestic flight ticket, for example from Kuala Lumpur to Penang, it will be subject to service tax [at 6%]. Anything related to the ticket such as upgrades or excess baggage charges are subject to service tax as well.

“However the Rural Air Services (RAS) is exempted,” she told reporters at a briefing by the department yesterday. RAS is a fully subsidised air operation that connects rural areas in Sabah and Sarawak.

Domestic air fares were previously not subject to service tax under the old SST, but were subsequently subject to GST at 6%.

Meanwhile, Nur Hanisah said a fixed tax rate of RM25 will be imposed on the issuance of principal or supplementary credit cards, including for every subsequent year or part thereof.

“Debit cards, loyalty cards and petrol cards will not be subject to the [RM25] charge,” she said.

It is worth noting that the amount charged is less compared with the old service tax model. Under the old  model, a service tax of RM50 a year is imposed on each principal credit card and charge card, and RM25 on each supplementary card.

Under the GST model, the consumption tax was charged on the annual fee that the credit companies charge their cardholders.