Indirect Tax Alert
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Issue No. 10/2025 | 22 May 2025
End of 90-day pause fast approaching. Are you ready for the next phase of the tariffs?
Further to our Indirect Tax Alert Issue No. 7/2025 dated 21 April 2025, we would like to update you on the key developments in the United States (US) tariffs on Malaysia.
Below are some of the key developments since the initial announcement was made 2 April 2025
Regulatory
- A 90-day pause on higher rates of ‘reciprocal’ tariffs was announced on 9 April 2025. This announcement will cease to apply after 8 July 2025.
- Early indications based on-going negotiations, suggests that the 10% baseline is here to stay for the foreseeable future.
- Trade delegations from many countries are in discussion with the US Administration about possible trade deals with the objective of averting the threat of significant tariffs. This includes Malaysia’s ongoing trade negotiation headed by officials from the Ministry of Investment, Trade and Industry (MITI).
- Additional tariffs were introduced on specific industries, such as 25% on automotive, steel and aluminium, which may be cumulative or mutually exclusive. These tariffs may have an impact on furniture exporters from Malaysia who use aluminium or steel in their products.
- For other goods such as those from the pharmaceutical and semiconductor industries which were given an exemption from the baseline tariffs may not be forever. Investigations have commenced under the national security provisions of US law (Section 232) which are likely to lead to significant tariffs on such goods in no less than 270 days. Tariffs on goods from such industries are expected to be introduced much earlier and the Section 232 tariffs are also expected to remain in place for a long time, rather than be negotiated down.
Businesses responses
- Many businesses are rushing to get their goods into the US before the end of the 'tariff pause' and thus has put serious pressure on their manufacturing capacities and the shipping availabilities and costs.
- Though many companies talk about shifting their supply chains and investments, but for most, these are not actions that are easily or quickly implemented.
- More typically, companies are looking to adjust product pricing as well as reduce US import values to mitigate the immediate pain, while they consider longer terms business strategies.
- On the back of pressure from the US and the increased focus on country of origin and customs value declarations by the US Customs and Border Protection (CBP), many companies around Asia are reassessing the supportability of their claims, be they historic or going forward.
Most impacted export categories
The top 8 most impacted export categories (based on their annual value exported to US) for Malaysia are as follows:
- Electrical, electronic equipment – USD23.68 billion
- Machinery, nuclear reactors, boilers – USD6.30 billion
- Optical, photo, technical, medical apparatus – USD3.89 billion
- Rubbers – USD1.69 billion
- Furniture, lighting signs, prefabricated buildings – USD1.55 billion
- Animal, vegetable fats and oils, cleavage products – USD600.11 million
- Plastics – USD571.98 million
- Articles of iron or steel – USD453.88 million
Certificate of Origin (COO)
Certificate of Origin is a document that states where the goods in a shipment were produced. For goods going to US, a non-preferential certificate of origin (NPCO) was obtained from the local chambers of commerce or business councils. In essence an NPCO certificate for goods do not qualify for reduced tariffs under the trade agreements. This is opposed to preferential certificate of origin (PCO) which entitles the exporter to enjoy reduced tariffs.
As of 5 May, all issuance of NPCOs in Malaysia has been returned to MITI as requested by the US to ensure stricter compliance with the issuance of such certificates.
Short, medium and long-term approach to mitigate the tariffs
Companies reliant on global sourcing should proactively evaluate the evolving trade environment to mitigate financial and operational risks across the value chain and develop short, medium, and long-term actions. They can take the following short, medium and long-term actions in customs:
- Short term: Implement scenario planning, customs value optimisation, strengthening compliance or use of deferral mechanisms.
- Medium term: Incorporate customs mitigation strategies such as origin planning, tariff engineering, etc.
- Long term: Incorporate customs considerations in any changes in commercial, tax / transfer pricing, supply chain / operations.
What should you do today?
We would advocate companies not to waste the 90-day respite and focus immediately on the following:
1. Obtain your trade data, map your trade flows in detail and scenario-plan various regulatory landscapes
This should help your company to have a better understanding of the impact of different trade and tariff scenarios as well as your response options. In addition, it will provide your company more agility in responding to changing landscape and the likely opportunities for knock-on business enhancements.
2. Strengthen your trade compliance
This will strengthen your company’s ability to support origin claims (especially non-preferential ones) and the ability to support customs value declarations. It is the first step to increasing trade compliance efficiency, possibly through technology.
3. Review and optimise your pricing strategies to be in line with your tariff strategies
This will improve your company’s agility in adjusting related and unrelated party product pricing and help in unbundling of non-dutiable costs from customs values. It will also ensure competitive pricing in the US market.
If you would like us to assist your company in any of the above or if you have any questions, please do not hesitate to contact us and we would be happy to assist you.
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