Malaysia Custom Tariff, A Guide for Importers

How to Save Money on Malaysia Custom Tariff: A Guide for Importers

Malaysia is a popular destination for importers who want to source quality products at competitive prices. However, importers also need to be aware of the custom tariff that applies to their goods, as it can affect their profit margin and cash flow. In this article, we will explain what is Malaysia custom tariff, how it is calculated, and how you can save money on it.

What is Malaysia Custom Tariff?

Malaysia custom tariff is the tax that the Malaysian government imposes on imported goods. It is based on the Harmonized Commodity Description and Coding System (HS), which is a standardized system of classifying products according to their characteristics and uses. The HS code consists of six digits, and each digit represents a different level of detail. For example, the HS code for coffee beans is 0901.11, where 09 is the chapter, 01 is the heading, and 11 is the subheading.

The custom tariff rate varies depending on the HS code, the country of origin, and the trade agreement that Malaysia has with that country. Malaysia’s tariffs are typically imposed on a value-add basis, with a simple average applied tariff of 6.1 percent for industrial goods . For certain goods, such as alcohol, wine, poultry and pork, Malaysia charges specific duties that represent considerably higher effective tariff rates.

How is Malaysia Custom Tariff Calculated?

The custom tariff is calculated based on the customs value of the imported goods, which is determined by the following methods:

The transaction value method: This is the price paid or payable for the goods when sold for export to Malaysia, adjusted for certain costs and charges such as freight, insurance, commission, royalties, etc.
The identical goods method: This is the customs value of identical goods sold for export to Malaysia at or about the same time as the goods being valued.
The similar goods method: This is the customs value of similar goods sold for export to Malaysia at or about the same time as the goods being valued.
The deductive value method: This is the price at which the imported goods or identical or similar goods are sold in Malaysia in the condition as imported, after deducting certain expenses such as commissions, profits, taxes, etc.
The computed value method: This is the sum of the cost of production of the imported goods, plus a reasonable amount for profit and general expenses, plus any other costs incurred in bringing the goods to Malaysia.
The fallback method: This is any other reasonable method consistent with the principles and general provisions of the World Trade Organization (WTO) Agreement on Customs Valuation.

The importer has to declare the customs value of their goods and provide supporting documents such as invoices, contracts, transport documents, etc. The customs officer may accept or reject the declared value and apply a different method if necessary.

How to Save Money on Malaysia Custom Tariff?

There are several ways that importers can save money on Malaysia custom tariff, such as:

Choosing a lower-tariff HS code:

Importers should check if their products can be classified under a different HS code that has a lower tariff rate. However, they should also ensure that the HS code accurately reflects the nature and characteristics of their products, as misclassification can result in penalties or confiscation of goods.

Applying for tariff exemptions or reductions:

Importers may be eligible for tariff exemptions or reductions if their products meet certain criteria or conditions. For example, some products are exempted from tariff under the Customs Duties (Exemption) Order 2017, such as raw materials, machinery and equipment for manufacturing purposes, essential food items, etc. Importers may also benefit from preferential tariff rates under various trade agreements that Malaysia has with other countries or regions, such as the ASEAN Free Trade Area (AFTA), the ASEAN-China Free Trade Area (ACFTA), the ASEAN-Australia-New Zealand Free Trade Area (AANZFTA), etc. Importers should check if their products qualify for these schemes and apply for certificates of origin or other documents to prove their eligibility.

Seeking professional advice:

Importers may consult with professional customs brokers or consultants who can help them with HS code classification, customs valuation, tariff exemptions or reductions, documentation requirements, etc. They can also help them with customs clearance procedures and handle any disputes or issues that may arise with the customs authorities.

Malaysia Custom Tariff and Global Demand

Malaysia’s import tariffs are typically imposed on a value-add basis, with a simple average applied tariff of 6.1% for industrial goods . For certain goods, such as alcohol, wine, poultry and pork, Malaysia charges specific duties that represent considerably higher effective tariff rates . Malaysia also imposes a sales tax of 10% on most goods and services.

Malaysia is a member of the Association of Southeast Asian Nations (ASEAN) and the ASEAN Free Trade Area (AFTA), which aims to reduce tariffs and non-tariff barriers among ASEAN members. Malaysia also has free trade agreements (FTAs) with several countries and regions, such as China, Japan, Korea, India, Australia, New Zealand and the European Union. These FTAs provide preferential tariff rates for qualifying products that meet the rules of origin criteria .

Impact of Malaysia’s Import Tariffs on Global Demand

Malaysia’s import tariffs affect the global demand for its imports and exports in various ways. On one hand, import tariffs increase the domestic prices of imported goods and services, making them less competitive and attractive to Malaysian consumers and businesses. This reduces the demand for imports from foreign suppliers and encourages domestic production and consumption. On the other hand, import tariffs also increase the production costs of Malaysian exporters who rely on imported inputs, making their products less competitive and attractive in foreign markets. This reduces the demand for exports from Malaysian producers and discourages export-oriented growth.

The net effect of Malaysia’s import tariffs on global demand depends on several factors, such as the elasticity of demand and supply, the degree of substitution and complementarity between domestic and foreign products, the availability and quality of domestic alternatives, the level and structure of tariffs, the extent of trade diversion and creation, and the impact of FTAs. In general, higher and more complex tariffs tend to reduce global demand more than lower and simpler tariffs. Similarly, tariffs on intermediate goods tend to reduce global demand more than tariffs on final goods. Moreover, FTAs can mitigate or enhance the impact of tariffs on global demand by creating new trade opportunities or diverting trade flows among partner countries.

Examples of Malaysia’s Import Tariffs and Global Demand

To illustrate the impact of Malaysia’s import tariffs on global demand, here are some examples of products that are subject to different tariff rates and FTAs.

Automobiles: Malaysia imposes high import tariffs on automobiles, ranging from 30% to 105%, depending on the engine capacity, origin and type of vehicle. These tariffs protect the domestic automobile industry from foreign competition and reduce the demand for imported vehicles. However, under the ASEAN FTA, Malaysia has eliminated tariffs on automobiles originating from ASEAN members since 2010. This has increased the demand for vehicles from countries like Thailand and Indonesia, which have lower production costs and larger economies of scale than Malaysia.
Rice: Malaysia imposes a specific duty of RM 428.6 per metric ton on rice imports, regardless of origin or quality. This duty aims to support the domestic rice farmers and ensure food security. However, this duty also increases the price of rice in Malaysia, making it more expensive than in neighboring countries like Thailand and Vietnam, which are major rice exporters. As a result, Malaysia’s demand for rice imports is low, while its demand for rice exports is high.
Textiles: Malaysia imposes low import tariffs on textiles, ranging from 0% to 20%, depending on the product category and origin. These tariffs reflect Malaysia’s comparative advantage in textile production and its export-oriented strategy. However, under some FTAs, such as the Malaysia-China FTA and the Malaysia-EU FTA, Malaysia has agreed to eliminate or reduce tariffs on textiles originating from these partner countries. This has increased the competition faced by Malaysian textile producers and reduced their export demand in these markets.

References:

http://www.customs.gov.my/en/ci/

Malaysia – Import Tariffs – International Trade Administration
https://www.dhl.com/discover/en-my/logistics-advice/essential-guides/complete-Malaysia-Import-Tax-and-Duties-guide
Malaysia – Import Tariffs | Privacy Shield
The Impact Of Tariffs On Global Trade – Investopedia
Malaysia’s Automotive Industry: A Review of Its Development and Future Prospects – ScienceDirect
Malaysia Rice Market – Growth, Trends, COVID-19 Impact, and Forecasts (2021 – 2026) – ResearchAndMarkets.com
Malaysia’s Textile and Clothing Industry: The Next Stage of Development – ScienceDirect
http://tariff.customs.gov.my/
http://www.customs.gov.my/en/ip/Pages/ip_cg.aspx
https://www.trade.gov/country-commercial-guides/malaysia-import-tariffs