Too Much of a Good Thing
In 2019, the Malaysian government introduced the so-called “Sugar Tax” as a means of addressing the growing prevalence of obesity and diet-related non-communicable diseases like diabetes by increasing the cost of Sugar Sweetened Beverages (“SSB”).1
The Sugar Tax came into force on 1st July 2019 through the Excise Duties (Sweetened Beverages) (Payment) Order 2019 [P.U. (A) 176/2019] (“SBPO”), which was gazetted on 28th June 2021. The SBPO was made pursuant to subsection 6(1) of the Excise Act 1976.
Containing six sections, the SBPO sets out the governing principles of the Sugar Tax. The Sugar Tax is an excise duty which is levied on the manufacture or warehousing of SSB in Malaysia, as well as the importation of SSB into the country from overseas.
A Spoonful of Sugar (Tax)
The Sugar Tax is applicable at the rate of RM0.40 per litre on SSB, where the total sugar content of the beverage exceeds 5 grams/100ml.2 For the purpose of the Sugar Tax, “Total Sugar Content” refers to all monosaccharides and disaccharides contained in a food or beverage, whether naturally occurring or added.3
Pursuant to the SBPO, two categories of persons (whether individuals or bodies corporate) are liable to pay the Sugar Tax4 the categories are as follows:
a) Licensed Manufacturers5 – a licensed manufacturer of SSB as referred to in the SBPO, is defined as a person holding a licence to distil, ferment or otherwise manufacture any dutiable goods, pursuant to Section 20 of the Excise Act 1976; and
b) Licensees6 – a person holding a license7 to store dutiable goods (such as SSB) in a licensed warehouse, pursuant to Section 25 of the Excise Act 1976
The key difference between the liability for Sugar Tax in respect of a licensed manufacturer and a licensee is the timing of when the said duty is due. The Sugar Tax becomes due for the licensed manufacturer of SSB, when the SSB are removed from the licensed place of manufacture for the purpose of sale to the consumer in Malaysia.8 By contrast, a licensee9 becomes liable for the Sugar Tax when the SSB is removed from their licensed warehouse10 for the purpose of consumption in Malaysia.11
As such, by virtue of section 5 of the SBPO, in the event where the SSB are removed for transit to or deposit in another warehouse, (such from the place of manufacture to the warehouse, or from one warehouse to another warehouse) and not for the purpose of consumption within Malaysia, the Sugar Tax would not be incurred.12
As the objective of the Sugar Tax is to lower the consumption of SSB by the Malaysian population, the said tax only applies to SSB being removed from the licensed place of manufacture or storage, for consumption in Malaysia – and not SSB which have been removed for export.13
At this juncture, exemptions are only available in respect of SSB where the total sugar content14 of the said beverages do not exceed the abovementioned threshold of 5 grams/100ml.15 However, this exemption is not automatically granted and the licensed manufacturer or licensee will need to comply with the Director-General of Customs’ requirements which, amongst others, includes a lab analysis report to verify that the SSB’s total sugar content does not cross the threshold.16 These exemptions are granted pursuant to Section 11(1) of the Excise Act 1976.
As with all newly imposed taxes, issues can arise which may affect the incidence of Sugar Tax in respect of existing commercial relationships.
This is especially so as the approach taken by the Government does not adequately take into account the commercial reality of modern day SSB manufacturing. Often, SSB brands would enter contract manufacturing arrangements whereby they may engage the services of a co-packer to produce and package the finished SSB. The finished SSB would then be transported from the factory and/or warehouse for consumption. In such scenarios, the Sugar Tax is imposed on the co-packer even though it does not retain legal title over the SSB, nor does it have a share in the profits from the sale of the SSB.17 It is then left to the co-packer to pass the cost onto the SSB brand.
Another issue that can occur, particularly where the co-packer is unused to dealing with dutiable goods, is where there is a discrepancy in the co-packer’s submissions made to Malaysian Customs in respect of the SSB. Again, in contract manufacturing arrangements, while the co-packer may be the licensed manufacturer or the holder of a license to warehouse the SSB, it is not the “owner” of the SSB (i.e., it does not have legal title over the SSB)18 and is often not the exporter. In such cases, care must be taken to ensure that there is clear documentary proof to show the flow of the SSB from the co-packer to the SSB brand, lest the Malaysian Customs deem the goods as having been illegally removed from excise control.19
In any event, it is always prudent to consult with tax law professionals in order to minimize the risk of tax penalties.
If you require any tax law advisory or tax litigation services in Malaysia, contact us today to find out how we can help you.
2 Item 39, Part 1 of the Schedule to the Excise Duties (Exemption) Order 2017 [P.U. (A) 444/2017]. See Excise Duties (Exemption) Order 2017 [P.U. (A) 444/2017], as amended by Excise Duties (Amendment) (No. 2) Order 2019
3 See Excise Duties (Exemption) Order 2017 [P.U. (A) 444/2017], as amended by Excise Duties (Amendment) (No. 2) Order 2019
4 Section 3 of the SBPO
5 Section 2 of Excise Act 1976
6 Means a warehouse or other place which has been licensed under section 25 for the warehousing of dutiable goods. See section 2 Excise Act 1976
7 Person who holds a license to warehouse dutiable goods under section 25 of the Excise Act 1976. See section 2 Excise Act 1976
8 Section 5(1)(a) SBPO
9 Means the person to whom a license of warehousing dutiable goods is issued under section 25(1) of the Excise Act 1976. See section 2 of SBPO
10 Means a warehouse or other place which has been licensed under section 25 for the warehousing of dutiable goods. See section 2 Excise Act 1976
11 Section 5(1)(a) SBPO
12 Section 31 of the Excise Regulations 1977
13 Section 29 of the Excise Regulations 1977
14 “Total Sugar Content” refers to all monosaccharides and disaccharides contained in a food or beverage, whether naturally occurring or added. See Excise Duties (Exemption) Order 2017 [P.U. (A) 444/2017], as amended by Excise Duties (Amendment) (No. 2) Order 2019
15 Item 39, Part 1 of the Schedule to the Excise Duties (Exemption) Order 2017 [P.U. (A) 444/2017]. See Excise Duties (Exemption) Order 2017 [P.U. (A) 444/2017], as amended by Excise Duties (Amendment) (No. 2) Order 2019
17 Section 6(1) SBPO
18 However, it should be noted that they may still qualify as “owner” of the SSB for the purposes of the Excise Act 1976. See Section 2 of the Excise Act 1976
19 Section 32(1) of the ER
Fatin Razanah Rezduan (Legal Executive) email@example.com