Excise Duties in Malaysia

What is excise duty in Malaysia?

Excise duty is an indirect tax imposed on specific categories of goods that are either manufactured within Malaysia or imported into the country for domestic consumption. Unlike broad-based consumption taxes such as sales tax that apply to a wide range of products, excise duties target particular goods that governments wish to regulate, discourage, or generate additional revenue from. In Malaysia's context, excise duty serves as both a fiscal instrument for revenue collection and a regulatory mechanism for influencing consumer behavior.

Contributing Advisor

Quinn Lu

Senior Associate, International Business Advisory

The primary purposes of excise duty in Malaysia include:

• Excise duties contribute billions of ringgits annually to federal government coffers, funding public expenditure and infrastructure development. Motor vehicle excise duties alone represent a substantial portion of this revenue stream.
• By imposing significant duties on tobacco products, alcoholic beverages, and sugar-sweetened beverages, the government aims to discourage consumption of products that pose health risks and contribute to non-communicable diseases such as diabetes, cardiovascular disease, and cancer.
• Excise duties create price signals that influence consumer choices, particularly for products with negative externalities affecting society beyond individual consumers.
• Certain excise structures can incentivize environmentally responsible consumption patterns, though this remains a developing area in Malaysia's excise policy framework.
• Differential excise treatment between locally manufactured and imported goods can provide competitive advantages for domestic producers, particularly in the automotive sector where national car policies have historically shaped duty structures.

The Royal Malaysian Customs Department, operating under the Ministry of Finance, administers and collects excise duties throughout Malaysia. The department enforces compliance, processes applications for exemptions, conducts audits, and pursues enforcement actions against violators.

Difference between excise duty, import duty, and sales tax

Understanding the distinctions between Malaysia's various indirect taxes is essential for accurate compliance and financial planning:

This compounding effect significantly increases the final landed cost of imported goods subject to multiple duties and taxes, particularly noticeable in sectors like the automotive, where excise rates can exceed 100 percent.

The impact of excise duties on businesses

Excise duties in Malaysia increase costs and compliance burdens for businesses that produce, import, or sell dutiable goods such as alcohol, tobacco, motor vehicles, and certain beverages, and can significantly affect pricing, demand, margins, and competitiveness. The impact is most pronounced for SMEs in affected sectors and for firms reliant on imported dutiable inputs.

Legal framework

Malaysia's excise duty framework operates under two principal legislative instruments:

The Excise Act 1976 serves as the primary legislation governing excise duties in Malaysia. Enacted on June 21, 1976, and brought into force on July 1, 1977, the Act consolidated and amended previous excise laws to create a unified framework applicable throughout Malaysia.

While the Customs Act primarily governs import and export duties, it contains provisions relevant to excise administration, particularly regarding:

• Import duties on goods also subject to excise duty upon importation.
• Valuation methodologies applicable to both customs and excise duty calculations.
• Enforcement powers of customs officers.
• Procedures for bonded warehouses and duty suspension arrangements.
• Appeal and dispute resolution mechanisms.

The interaction between these two Acts is particularly important for importers of dutiable goods, who must navigate both customs duty obligations under the Customs Act and excise duty obligations under the Excise Act.

The Minister of Finance exercises substantial authority to modify excise duty rates and coverage through orders published in the Federal Government Gazette. Recent examples include the Excise Duties (Amendment) Order 2023 introducing excise duty on nicotine-containing vape liquids, and the 2025 orders increasing duties on tobacco and alcohol products.

When and how excise duty is levied in Malaysia

Excise duty liability in Malaysia depends primarily on whether goods are locally manufactured or imported, and may vary under special warehousing or export arrangements. The Royal Malaysian Customs Department (RMCD) administers all excise duty collection and compliance under the Excise Act 1976 and the Customs Act 1967.

For goods produced in Malaysia, excise duty becomes chargeable upon manufacture and payable when goods are removed from the licensed manufacturing premises or other designated tax points.

Duty liability arises under Section 20 of the Excise Act 1976, and the licensed manufacturer or producer bears primary responsibility for declaration and payment.

For imported goods, excise duty is levied at the point of importation, assessed during customs clearance when goods enter Malaysia.

Certain facilities and arrangements allow duty suspension or deferment until goods are released for domestic consumption.

Licensed Manufacturing Warehouse (LMW) overview

Goods subject to excise duty in Malaysia

Malaysia’s excise duty framework applies to a relatively narrow range of goods compared to broad-based consumption taxes like sales or service tax. Excise duties primarily target products associated with public health concerns, luxury consumption, or specific regulatory objectives.

Excise duty covers seven main product categories:

• Motor vehicles.
• Alcoholic beverages.
• Cigarettes and tobacco products.
• Electronic cigarettes and vaping products.
• Sugar-sweetened beverages (SSB).
• Premix preparations (e.g., 3-in-1 coffee).
• Certain gaming materials (playing cards and mahjong tiles).

Both locally manufactured and imported goods are subject to excise duty, though imported goods may incur additional import and sales taxes. The following table summarizes major categories of excisable goods and their duty structure:

Excise duty rates by product category

Motor vehicles

Malaysia imposes among the highest automotive excise duties globally, historically tied to national car protection policies.

Alcoholic beverages

Tobacco products

Electronic cigarettes and vaping products

Sugar-Sweetened Beverages (SSB)

Premix preparations

Gaming materials

Compliance and regulatory notes

• All manufacturers of excisable goods must obtain an Excise License under Section 20 of the Excise Act 1976.
• Duty must be calculated, declared, and paid per unit of production or importation.
• Budget 2026 Measures:
• Alcoholic beverages and tobacco products face rate increases effective November 1, 2025.
• Public health rationale drives these increases, channeling funds toward disease prevention and treatment programs.
• Import duty and sales tax exemptions extended to December 31, 2027, covering sprays, mists, and lozenges.

How is excise duty calculated?

Malaysia employs three primary methodologies for calculating excise duty, each suited to different product characteristics and policy objectives.

Ad Valorem (percentage-based)

Ad valorem excise duties are calculated as a percentage of the product's value, similar to sales tax methodology. "Ad valorem" is Latin for "according to value."

Specific (fixed amount per unit)

Specific excise duties impose a fixed monetary amount per unit of measurement—per stick, per liter, per kilogram, or per milliliter. The duty amount remains constant regardless of the product's value or price.

Hybrid or mixed duties

Hybrid or composite duties combine elements of both ad valorem and specific duty structures, applying both a percentage of value and a fixed amount per unit.

Excise duty exemptions and rebates

While excise duties apply broadly, Malaysian law provides several exemption and rebate mechanisms to support policy objectives, promote exports, and accommodate special circumstances. These measures ensure excise taxation targets domestic consumption while minimizing burdens on exporters and key sectors.

Export-related exemptions apply to goods manufactured for export or imported for re-export, as they are not consumed domestically. LMW-licensed manufacturers exporting at least 80 percent of their output may produce excise-dutiable goods (except excluded categories) with duty liability suspended until released for local sale.

Manufacturers that have paid duty on subsequently exported goods may claim a drawback (refund), while importers intending to re-export must generally do so within three months, subject to approved extensions.

Beyond export facilitation, Malaysia also offers sectoral exemptions to enhance competitiveness, support local industries, and advance social policy goals.

• While Complete Knock-Down (CKD) vehicles assembled in Malaysia remain subject to excise duty, they benefit from reduced import duty on components (10 % versus 30 % for fully built-up vehicles), effectively lowering the duty-paid value base used to calculate excise duty. Additionally, full excise and sales tax exemptions continue for eligible taxi and private hire vehicle owners purchasing new Proton and Perodua vehicles. This measure supports the domestic automotive industry while helping reduce transportation costs for the public.
• Goods imported by diplomatic missions, international organizations, and certain government entities may qualify for exemption under the Excise Duties (Exemption) Order 1977, reflecting Malaysia’s adherence to international diplomatic protocols.
• Free Industrial Zones (FIZs) and Free Commercial Zones (FCZs) are treated as areas outside the principal customs territory. Goods brought into, produced in, or consumed within these zones are not subject to excise duty, unless subsequently removed into the principal customs area for domestic sale or use.
• Malaysia maintains Designated Duty-Free Islands, including Langkawi, Labuan, Tioman, and Pangkor, where excise exemptions traditionally apply to most goods. However, Budget 2026 introduced new limitations—particularly for high-value motor vehicles—to curb abuse of these privileges while maintaining the islands’ tourism incentives.
• To support national health objectives, import duty and sales tax exemptions for nicotine replacement therapy (NRT) products—including nicotine gum, patches, mists, and lozenges—have been extended until December 31, 2027. This measure facilitates affordable access to smoking cessation aids as part of Malaysia’s broader tobacco control strategy.

Recordkeeping and documentation

The Excise Act 1976 and implementing regulations require manufacturers and importers to maintain comprehensive records for at least four years.

Proper recordkeeping not only ensures compliance but also facilitates efficient responses to customs queries, supports exemption applications, and provides evidence in case of disputes.

Penalties for non-compliance

The Excise Act 1976 establishes significant penalties for violations, reflecting the importance of excise duty compliance to government revenue and public policy objectives.

• Failure to pay the full amount of excise duty due, whether through calculation errors, under-declaration of quantities, or deliberate evasion, constitutes a serious offense.
• Providing false information in excise returns, applications, or declarations—whether regarding quantity, value, classification, or other material facts—violates the Act.
• Manufacturing excisable goods without appropriate license under Section 20 of the Excise Act 1976.
• Removing dutiable goods from licensed premises, warehouses, or customs control without proper authorization, permits, or payment of duty.
• If goods are found missing from licensed manufacturing warehouses or bonded facilities without proper accounting, the licensee is presumed to have illegally removed them and is liable for duty on the deficient quantity (unless unavoidable loss is proven).
• Not keeping required records or providing incomplete, inaccurate, or inaccessible documentation when requested by customs officers.
• Interfering with, hindering, or refusing to cooperate with customs officers executing their duties.