The Malaysian government has recently introduced important amendments to the Customs Act 1967 (Customs Act) via the Customs (Amendment) Act 2019 (Amendment Act). The Amendment Act was gazetted as an Act of Parliament on July 9, 2019. At the time of writing, the date of coming into force of the Amendment Act has not yet been announced, but it is anticipated that it will come into force by January 1, 2020.
Key amendments introduced under the Amendment Act are as follows:
Timeline for Demand of Back Duties
The timeline within which the Royal Malaysian Customs Department (Customs) may demand payment of duties underpaid will be extended from three years to six years. Accordingly, the scope of Customs audits is expected to be extended beyond the standard three-year audit period. The timeline does not apply to instances of fraud or default. At this juncture, there is no further clarification as to the interpretation of the term “default” which can potentially encompass a broad spectrum of circumstances where Customs may lift the six-year limitation period.
Changes to the Compounding of Offenses Provision
The Amendment Act removes the existing provisions relating to the compounding of offenses and provides for the issuance of regulations relating to the same. The compounding regulations are yet to be published at this juncture, and we note that this amendment is likely to bring about significant changes to Customs’ practice in respect of the compounding of offenses.
Issuance of Public Rulings
The Director General of Customs will be empowered to issue public rulings on the application of any provision of the Customs Act. This may bring about additional transparency in the operations of Customs, as well as enhanced clarity on Customs’ interpretation of the Customs Act and consequently more certainty to businesses.
New Categories of Offenses
In line with the spirit of the amendments to strengthen enforcement and to increase penalty for non-compliance with the Customs Act, various new categories of offenses have been introduced. This includes offenses relating to the destruction or manipulation of data stored in computers, unlawful claims for refunds, incorrect declaration of origin.
Enhanced Powers of Enforcement
Subject to the authorization of the public prosecutor, Customs officers are granted new powers to intercept communications that may contain information relevant for the purposes of investigating any Customs offenses. The forms of communication that may be intercepted by Customs include postal articles transmitted by post, messages transmitted by any telecommunication and conversations by any telecommunication.
Rules of Origin
The Amendment Act introduces an entirely new chapter on origin of goods as well as preferential and non-preferential tariff treatment. This new chapter regulates various aspects relating to the origin of goods including, among others, application for certificate of origin, responsibility of the importer, producer and exporter, eligibility criteria to claim preferential tariff and verification of origin-related documents and information. The Amendment Act also extends the scope of matters for which a Customs ruling can be sought to include origin of goods.
The record-keeping requirements under the Customs Act will be extended from six years to seven years. The Amendment Act also sets out a clear list of records that will be subject to the extended seven-year record-keeping requirements, including any accounting, management and financial records as well as business records such as sales, distribution and royalty agreements which may affect a person’s obligations under the Customs Act.
It should be noted that pursuant to the Amendment Act, free zones will be deemed to be a place “outside a principal customs area” for the purposes of Customs Act, as opposed to “outside Malaysia” under the current provisions. It remains to be seen whether there will be changes in Customs procedures relating to the movement of goods in to and out of a free zone arising from the amendments.
Transit and Transshipment
The Amendment Act makes significant changes to the legislative provisions regulating transit and transshipment activities. Detailed procedures for transit and transshipment are spelled out in the Amendment Act. The Amendment Act also introduces provisions to safeguard goods moved under transit and transshipment, and requirements for the owner of goods in transit or transshipment or his agent to be immediately liable to pay duties when the transit/transshipment procedures are interrupted.
The Amendment Act provides that in cases of deficiencies in quantities of dutiable goods at a licensed manufacturing warehouse, a licensee is presumed to have illegally removed the goods and is liable to pay Customs duty on the deficient goods. A licensed warehouse licensee will also be required to provide an appropriate Customs office and facilities at the licensed warehouse at the licensee’s own expense.
Timeline to Claim Duty Refund
The Amendment Act imposes a one-year timeline to submit a refund claim for duties paid pending origin verification, appeal to the Director General or appeal to the Customs Appeal Tribunal (in addition to payment made under protest), from the date that the decision on verification of origin, review and appeal is made known to the claimant.
Currently, the joint and several liability of directors is only limited to Customs duties payable. The Amendment Act now extends the joint and several liability to cover surcharges, penalties, fees or other money payable to Customs.
New Powers to Offset
The Amendment Act seeks to grant new powers to Customs to offset any drawback or refund due to a person against any Customs duty, excise duty, sales tax, service tax, goods and services tax (GST) and other amounts owing by such person. The offset amount shall be treated as payment or part payment received from such person of the amount owing.
Section 93 Duty Drawback
Section 93 provides for a drawback facility for duty paid on imported goods which are subsequently re-exported. The timeline for the goods to be re-exported for duty drawback purposes has been reduced from 12 months to three months from the date upon which the Customs duty is paid. The minimum threshold for eligibility to claim a duty drawback will also be increased from 50 ringgit ($12) to 200 ringgit.
Confidentiality of Information
The confidentiality provision under the Customs Act is revamped to provide that all information, documents or declarations relating to importation, exportation, valuation, classification or origin determination of any goods are to be treated as confidential by customs officers. Any customs officer who improperly discloses or communicates such information in breach of this requirement may be liable to imprisonment for a period not exceeding five years and/or to a fine not exceeding 100,000 ringgit.
The Amendment Act introduces an entirely new part which sets out the appropriate Customs treatment for transportation of goods to and from Pulau Pangkor, as a new duty-free island.
Given the extensive amendments being introduced under the Amendment Act, a comprehensive understanding of the changes is key to ensure that businesses are able to fully comply with the overhauled Customs law in Malaysia.
Failure to comply with the updated obligations and requirements under the Amendment Act will put businesses at risk of being exposed to potentially significant back duties and penalties in the event that non-compliances are discovered by Customs. This is particularly the case in light of the extension of the timeline for Customs to demand back duties, enlargement of powers of enforcement and the introduction of new categories of offenses under the Amendment Act. These collectively magnify the powers of Customs to enforce the law, collect back duties and penalize non-compliant entities.
As can be gleaned from the above, the key developments that will be introduced under the Amendment Act are expected to significantly change the risk profile of multinational businesses with operational footprints in Malaysia. As such, a review of existing processes and practices may be warranted, especially for multinational businesses with significant import/export operations in Malaysia, to ensure that businesses remain fully compliant with the requirements of the law when the changes come into force and to minimize any risk of reputational and financial exposure.
From an enforcement perspective, it is anticipated that there may be more active and stricter enforcement on the trade and Customs front in Malaysia once the Amendment Act enters into force. This is especially given the global economic climate as well as the observed trend of enlargement of the scope of various taxation avenues in Malaysia under the stewardship of the newly elected Malaysian government, which may be indicative of the potential fiscal and policy direction of the Malaysian government.
In view of the foregoing anticipated development, a multinational business should be more vigilant in conducting its supply chain operations in Malaysia and may wish to account for this potential change in risk profile in developing its trade compliance strategy and focus for its operations in Malaysia. Where necessary, a health check or an internal audit exercise may be warranted for businesses to identify any potential gaps in operations and, if required, to develop a defense strategy in anticipation of an audit or investigation.
Adeline Wong is Partner and Head of Tax Practice, Ivy Tan is an Associate and Kelvin Hong is an Associate at Wong & Partners, member firm of Baker McKenzie in Malaysia.
This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.