Tariff classification is a complex yet extremely important aspect of cross-border trading. Goods imported from or to Malaysia are classified by the Harmonized Tariff Schedule (HTS) or commonly referred to as HS Codes.
The codes, created by World Customs Organization (WCO), categorize up to 5,000 commodity groups and its breakdown of items.
HS Codes are made of 6-digit numbers that are recognized internationally, though different countries can extend the numbers by two or four digits to define commodities at a more detailed level.
Importance of Correct Tariff Classifications
- uniform identification of goods for purposes of duty and tax collection
- enforcement of national laws and international treaties
- analysis for economic and business planning
- international trade negotiations
- correct tariff classification is a legal responsibility
- non-compliance can result in shipment delay, increased inspections, fines and penalties
- correct classification will help you save money
Tools for Tariff Classification
- Alphabetical Index to the Customs Duties Order 2007
- The Malaysian Trade Classification & Customs Duties Order (amendments up to January 2016)
- Customs Duties (Goods under the Framework Agreement on Comprehensive Economic Cooperation between ASEAN and China) (ASEAN Harmonized Tariff Nomenclature) Order
While most of the items imported or exported have been listed and labelled with a specific HS Code, there are certain new products or unclear identification of a certain product that fall under the grey area.
- a pen that comes with a clock – do you categorize and declare the goods under pen or clock?
- a mobile plastic toilet (that is mostly used for events) – do you declare under toilet or plastic?
Questions that You Can Ask to Predetermine the HS Code
- What is the product? (is it an animal product, chemical, food stuff, beverage machinery, vehicle, equipment, textile, etc.?)
- What is the function of the product? (consider the main, essential function of it)
- What is the manufacturing process of the product?
- What is the material of the product?
- What are the ingredients of the product?
- Is the product a pure chemical or mixture of different chemicals?
There are also rules that will help to determine the precise tariff classification for your goods but they are quite lengthy and complex for general understanding.