How to Check SST Exemption in Malaysia
Many procurement and operations teams ask a very straightforward question:
“How do we check whether this item qualifies for SST exemption?”
On paper, the answer seems simple — check the HS code, refer to the exemption order, and apply.
In practice, this is where most compliance risks begin.
From my experience both inside the Royal Malaysian Customs Department and now advising manufacturers, SST exemption is not merely about what the product is. It is equally about:
Who is purchasing/importing
How the goods are used
Under which legal schedule the exemption is claimed
Whether conditions are continuously complied with
If you are a registered manufacturer or an importer checking exemption before bringing goods into Malaysia, this decision map will help you think correctly.
Step 1: Identify Which Exemption Schedule May Apply
Under the Sales Tax (Persons Exempted From Payment of Tax) Order 2018, manufacturers typically check:
Schedule A – Specific goods exempted unconditionally
Schedule B – Exemption for specific persons or industries (e.g. MIDA-approved projects)
Schedule C – Registered manufacturers acquiring raw materials, components, packaging materials, or manufacturing aids
The first question is not “Is the HS code listed?”
The correct first question is:
Under which Schedule are we legally entitled to claim exemption?
Step 2: Confirm Legal Entitlement (Not Just Product Eligibility)
This is where many companies make mistakes.
Checking SST exemption requires validating three layers simultaneously:
HS Classification accuracy
Legal schedule coverage
Usage condition compliance
A common error I have seen:
Looking only at the HS code and assuming exemption applies
Ignoring the phrase “used solely and directly in the manufacture of taxable goods”
Using exemption approval issued to Company A for purchases under Company B
Exemption is not transferable between companies. It is entity-specific.
And exemption is not permanent simply because approval was granted once.
Step 3: Validate Usage Condition
Especially under Schedule C, the most misunderstood part is the usage requirement.
Goods must be:
Used solely
Used directly
Used in the manufacture of taxable finished goods
If the finished goods are non-taxable, exported differently structured, or partially used for non-manufacturing activity, risk exposure begins.
Case Illustration
A manufacturer imports chemicals under Schedule C.
Later, part of the chemicals are:
Used for R&D
Used for repair work
Written off as reject
If not properly accounted for, this may trigger:
Sales tax payable on unaccounted goods
Backdated assessment during audit
Penalty exposure
Exemption is conditional compliance — not blanket immunity.
Step 4: Check Reporting & Record Obligations
Checking exemption is incomplete if you do not check reporting obligations.
For example:
Schedule C requires CJ(P) quarterly reporting
Stock reconciliation must match import declarations
Manufacturing output must align with raw material usage
From audit experience, many issues arise not because exemption was wrong — but because documentation cannot support the claim.
If you cannot prove usage, exemption becomes tax payable.
The 3 Most Common Mistakes I’ve Seen
From enforcement and advisory perspective, these are recurring patterns:
Looking only at HS code but ignoring usage condition
Assuming approval equals permanent compliance
Using one company’s exemption entitlement for another entity’s purchase/import
These mistakes often remain undetected for years — until audit.
And SST operates on a single-stage taxation principle.
If exemption fails, the exposure can be retrospective.
A Simple Internal Decision Map
Before claiming exemption, procurement and operations teams should ask:
Are we legally entitled under the correct Schedule?
Is the HS classification accurate and defensible?
Does the usage fully comply with “solely and directly” requirement?
Are reporting and reconciliation systems ready to support this claim?
Is this exemption still aligned with our current business model?
If any answer is uncertain, the exemption should not be treated as automatically safe.
Final Thought
Checking SST exemption is not an administrative exercise.
It is a legal validation process.
For manufacturers importing high volumes of raw materials, even a small classification or usage misinterpretation can create significant backdated exposure.
Many companies only review exemption when:
Expanding operations
Facing audit notification
Or discovering inconsistencies internally
A structured internal exemption review — before issues arise — is often more strategic than reactive correction.
If your team is currently relying on legacy approval without recent validation, this may be a good time to reassess whether your exemption position remains technically defensible and operationally sustainable.
