Move to simplify administration of licensed warehouses, free industrial zones
THE Malaysian Government is seeking industry feedback on the streamlining of operations of licensed manufacturing warehouses (LMW) and free industrial zones (FIZ).
The streamlining of operations will result in the implementation of the Export Processing Establishment (EPE), aimed at simplifying procedures for the movement of goods and minimising and standardising customs control and administration in these two dedicated manufacturing areas.
Goods produced in these two areas are largely for export.
An aerial view of the Free Industrial Zone in Bayan Lepas, Penang.
The EPE plan, which is still on the drawing board, was presented recently by representatives of the finance ministry during a dialogue session with investors.
The FIZ is governed under the Free Zones Act 1990 while the LMW is under customs laws, according to Rajadorai C.K. Pillay, an assistant project director at the finance ministry.
“For the movement of goods, LMW is subject to documentary control by the Customs Department while FIZ is subjected to 24-hour physical checks by the department.
“Also, FIZ is deemed to be outside Malaysia while LMW can be established anywhere in the principal customs areas.
“Another primary difference between the two is that FIZ is controlled by the free zone authority while LMW is controlled by the customs,” he said.
Rajadorai added that while services used in FIZ were not subject to service tax, LMW operators had to pay service tax.
“But goods and raw materials directly used in the manufacturing process in LMW and FIZ are not subject to import duty and sales tax,” he said.
To date, there are 343 companies operating in FIZ and 1,905 in LMWs.
Rajadorai said the EPE would streamline the differences between LMW and FIZ, resulting in seamless flow of goods, simplified Customs control and procedures, cost effectiveness and a faster turnover time for manufacturers.
According to the plan, EPE will be governed under principal Customs areas similar to LMW.
“We have proposed that the Free Zone Act and Customs Act (Section 65) be revoked. We will come up with a new provision for EPE.
“Under the new provision, companies operating in both FIZ and LMW will enjoy minimum Customs formalities and control,” Rajadorai said, adding that the EPE would have to be licensed under the Customs Act.
“Under the EPE, raw materials and components used directly in the manufacturing process will be exempted from duties and taxes.
“There will also be duty exemptions for machinery and equipment used in the manufacturing process,” he said.
But some participants at the dialogue argued that the implementation of EPE without any rigid authority would make the free zones highly accessible to any type of company wanting to set up operations there.
Currently, free zones are dedicated to manufacturers that export 80% of their goods.
“This will mislead foreign direct investors on the purpose of our free zones that are supposed to be a dedicated place for export-driven manufacturers,” one participant said.
Another participant also expressed concern that the EPE would be in direct competition with local small and medium enterprises.
Rajadorai, however, said the EPE would retain the quota for export and domestic usage.
“That is why we need the feedback and opinions before the EPE is implemented. Industry players are encouraged to contact the finance ministry to voice out their opinions,” he said.