Friday, June 24, 2011

TREASURY EXEMPTION UNDER SECTION 14(2) CUSTOMS ACT 1972

1.0 INTRODUCTION
To encourage the development of the various economic sectors, the government has given various incentives to boost manufacturing, petroleum, R & D and tourism industries. Exemption from the payment of customs duties under Section 14(2) Customs Act 1967 is one such provision.

2.0 LEGAL PROVISIONS
There are two (2) provisions under the Customs Act 1967, which empower the Minister of Finance to grant exemption from the payment of import duties, under Section 14 of the Customs Act 1967, the Hon Minister of Finance can either:
2.1 By Order exempt any class of goods or class of persons, or
2.2 Specifically in writing, exempt any individual or company from the payment of any customs duty or prescribed charges or fees payable.

3.0 RATIONALE
Duty exemption is a form of assistance/ incentive provided by the Government to the manufacturing sector aimed at lowering their cost of production in order to become more competitive in the international arena.
It is believed that, the benefits received in the form of reduced costs would be passed down to the consumers in the domestic market in the form of lower prices. Thus besides providing the domestic consumer the opportunity to enjoy more competitive prices on finished products, the Government's objective of curtailing inflationary pressure is also achieved.

4.0 AGENCIES INVOLVED
Three government agencies that play a major role in providing the exemption under Section 14(2) Customs Act 1967 are as follows :
Stage 1 Malaysian Industrial Development Authority (MIDA) - Application for exemption
Stage 2 Ministry of Finance (Treasury) - To approve or reject application
Stage 3 Royal Customs & Excise Department - To supervise and control
Click here to view the flowchart

5.0 TWO TYPES OF EXEMPTION GIVEN

5.1 Exemption on Raw Materials and Component Parts
Manufacturers may apply for exemption from import duties on raw materials and components imported and used in the manufacturing of their finished goods. The extent of exemption granted would be very much dependant on whether the goods are manufactured for sale in the domestic market or the export market.
5.1.1 Domestic Market
It is the government's policy to provide full/ partial exemption (where applicable) from import duty on raw materials/ components imported for the manufacturing of goods for local consumption.
5.1.2 Export Market.
To encourage the export market, it is the government's policy to grant full duty exemption on raw materials and components used in the manufacturing of goods exported.
5.2 Exemption on Machinery and Equipment
In conjunction with the exemption given on raw materials/ components, the government also grants exemption on machinery and equipment used in the manufacturing.


6.0 IMPORTATION PRIOR TREASURY APPROVAL

6.1 Temporary Exemption via Bank Guarantee
Companies are further allowed to import raw materials/ components or machinery/ equipment pending Treasury approval on condition a copy of the acknowledgement letter from MIDA together with a bank guarantee equivalent to the duty/ tax is submitted to Customs at the time of release.
However if no approval is obtained within six (6) months of release of goods, the relevant duty/ tax would become due and payable thereof.
6.2 Refund On Duties Already Paid
Companies that have obtained Treasury approval letters after the importation of goods are still allowed to make refund claims on import duties that have already been paid within three (3) months from the date of the approval letter.


7.0 WHEN AND HOW THE EXEMPTION FACILITIES MAY BE UTILISED
The exemption may be used/ claimed at the time of release or when the goods are purchased/ obtained from a warehouse licensed under sec. 65 / 65A of the Customs Act 1967.
The invoices and bills of lading should have the importer's/ manufacturer's name and the goods declared in either Customs Form No. 1 or Customs Form No. 9 for customs clearance.


8.0 PLACE OF IMPORTATION
Importation is only allowed through the import stations specified in the Treasury approval letter. Prior approval must be obtained from the original approved importing station before any changes are made to the entry points.


9.0 EXEMPTION PERIOD.
Exemptions are normally given for a period of one to two years. However, new applicants initially start with a one year exemption so that the production performance of both the manufacturers for the domestic and export markets can be easily monitored.


10.0 IMPLEMENTATION CONTROLS
Companies granted duty exemption are documentary controlled. As such, the companies are held fully accountable for the security of the goods and the duties involved, if any of the conditions of the exemption are breached.
The Industry Branch of the Customs Station nearest to the factory normally monitors and controls the activities of the exemption holder.


11.0 THE ROLE OF THE DEPARTMENT
The Customs Department has been entrusted with the responsibility of monitoring and controlling the users of the above exemption, to ensure that the exemption is enforced in full and at the same time, the conditions as in the "Lampiran" attached are complied with.
To achieve this, the Department from time to time, provides the necessary support and guidelines to ensure exemption holders are aware of their duties and responsibilities.
To facilitate controls, all new exemption holders are required to forward the following documents to the Industry Branch of the Customs Station controlling their factories.
Memorandum and Articles of Association (MA&A);
Form 9, Form 24 and Form 49
Location map [of approved premises];
Flow chart of the manufacturing process;
Input and output ratio.
Specimen signatures and relevant information of authorized personnel dealing with Customs matters ('Lampiran B').
A copy of any utility bill as proof of occupation of premises/ factory.
12.0 EXPORT OF MANUFACTURED GOODS
When manufactured goods using exempted raw materials/ components are exported, exemption holders have to make the necessary declaration on Customs Form No. 2 as specified below:
"Saya [nama]............................[jawatan]...............................di alamat .......................................mengakui bahawa barang siap yang dieksport ini diperbuat dari bahan mentah/ komponen yang diimport DI bawah pengecualian duti DI bawah seksyen 14(2) Akta Kastam 1967 melalui surat Perbendaharaan bil. .........................................................bertarikh........................"
...............t.t.....................
[Nama & jawatan:]
No.K/P:
Cop Syarikat:
Tarikh:


13.0 FACILITIES PROVIDED FOR COMPANIES GIVEN DUTY EXEMPTION
13.1 SUB CONTRACT WORK
The company given duty exemption is allowed to do sub contract work by obtaining the necessary approval from the State Director of Customs using " Lampiran M."
13.2 EXPORT THROUGH THIRD PARTY.
Manufactured goods intended for export through third party require prior approval from the relevant State Director of Customs using a Lampiran J.

14.0 THE ROLE OF THE COMPANY

14.1 The company must notify the Customs Department when there is a change of address/ increase in the number of stores/ factories.
14.2 The company must submit a quarterly return in " Lampiran K" for raw material usage or " Lampiran C" for inventory of machinery/ equipment imported, to the controlling customs station.
14.3 The company is required to maintain proper inventory/ records on machinery/ equipment/ raw materials/ components imported and used.
14.4 The company should obtain written approval from the controlling Customs Station for the movement of goods including the sale, destruction and export of waste, raw material/ components and sales of manufactured goods to the local market. For the sale of any manufacturing waste/ refuse, raw material/ components and manufactured goods to the local market, the duty or tax involved is to be paid. For goods that have been destroyed, the duty or tax involved will be remitted. However, a certificate of destruction must be submitted using a " Lampiran H - Format I" for raw material/ components and manufactured goods destroyed, and " Format II" for waste or refuse.
14.5 The company must inform the Customs Department ( Industry Branch/ Division) within 14 days, on the event of the following incidents:
Date of resolution of winding up.
An order to wind up is issued.
Appointment of liquidator/ receiver.
Upon ceasure of operations, voluntary winding up, involvement in civil suits and such activities.


15.0 LOSS OF GOODS IN A FIRE
Should the premises of a company storing exempted goods be destroyed by fire it becomes company's responsibility to forward the following documents to the Industry Branch controlling the factory:
15.1 Description of goods
15.2 Quantity of goods
15.3 Value of goods
15.4 Customs duties involved
15.5 Police Report
15.6 Fire Department Report.
15.7 Explanation from company ( owner's report ).

16.0 LEGAL PROVISION FOR NON COMPLIANCE

16.1 Re-imposition of Duty
Whosoever fails to comply with the terms and conditions imposed under the exemption is liable to all customs duties due and payable provided under Section 15 of the Customs Act 1967:
16.2 Provision for Offences
Any person found to have breached the conditions imposed, is liable to pay a fine not exceeding RM 20.000.00 under Section 138 of the Customs Act 1967.
When a serious offence is committed, there is a high possibility of the exemption given being withdrawn and the offender being black listed.

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