Malaysia proposes sales-tax refunds for traders supplying manufacturers

Closing a local supply-chain gap

Appendix 33 says manufacturers can currently obtain exemptions for specified machinery, spare parts and equipment under Schedule A item 55 of the Sales Tax (Persons Exempted from Payment of Tax) Order 2018 and for approved pharmaceutical, animal-feed, fertiliser and pesticide inputs under Schedule B. The Budget identifies a gap: the exemptions apply where the manufacturer imports directly or buys directly from a local registered manufacturer, but not where it procures the goods through a local trader or distributor.^[1][2][3]

Refund for tax-paid goods

The proposal would allow a local trader or distributor that has paid sales tax to claim a refund for eligible goods supplied to a manufacturer. It covers the machinery, spare parts and equipment within Schedule A item 55 and the Schedule B inputs used to manufacture pharmaceutical products, animal feed, fertilisers and pesticides. The announced start date is 1 January 2027. The refund is therefore designed for the intermediary’s tax-paid supply, rather than as a new direct exemption claimed by the manufacturer at purchase.^[1]

Existing exemptions remain conditional

The 2018 Order grants exemption only to the persons and goods listed in its schedules and subject to their stated conditions. Schedule A item 55 applies to a manufacturer in the Principal Customs Area endorsed by MIDA, for approved new and unused machinery, equipment and spare parts used directly at the approved premises. Schedule B item 2 covers goods used solely to manufacture Chapter 30 pharmaceutical products. The Order also contains certificate, record-keeping and tax-accounting requirements; the Budget proposal does not displace those existing rules.^[2]

2026 expansion of Schedule B

P.U.(A) 303/2026, made on 26 August 2026 and effective from 1 September 2026, added Schedule B items 5, 6 and 7 for goods approved by the Minister and used solely in animal-feed, fertiliser and pesticide production. The conditions include manufacturing-licence or MIDA confirmation requirements and specified acquisition routes. Appendix 33 builds its proposed trader refund around that enlarged current schedule rather than itself creating the underlying manufacturer exemptions.^[1][3]

Mechanics still to be enacted

The Budget does not state who will file the refund, the evidence required, the claim period or how the facility will interact with returns and adjustments. Those details require implementing legislation or customs guidance. Manufacturers and distributors can identify potentially eligible supply chains now, but should not treat tax paid through a trader as recoverable until the operative rules, definitions and procedures are published.^[1][2][3][4]