Tax Structure (CEPT)

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INTRODUCTION
The CEPT Scheme is the main instrument for making ASEAN a free-trade area. The main objective of AFTA is to increase ASEAN’s competitive edge as a production base geared for the whole market. A critical step in this direction is the liberalization of trade in the region through the elimination of intra-regional tariffs and the elimination of non-tariff barriers. This will have the effect of making ASEAN’s manufacturing sector more efficient and competitive in the global market. At the same time, consumers will source goods from the more efficient producers in ASEAN, thus expanding intra-ASEAN trade.

As the cost competitiveness of manufacturing industries in ASEAN is enhanced and with the larger size of the market, investors can enjoy economies of scale in production. In this manner, ASEAN hopes to attract more foreign direct investments into the region. This will in turn stimulate the growth of supporting industries in the region for many direct foreign investments.

WHAT IS THE CEPT SCHEME?
The Common Effective Preferential Tariff (CEPT) Scheme is a cooperative arrangement among ASEAN Member States that would reduce intra-regional tariffs and remove non-tariff barriers over a 10-year period commencing 1 January 1993. The goal of the Scheme is to reduce tariffs on all manufactured goods to 0-5% by the year 2002 for the original six member states, Malaysia, Singapore, Brunei, Thailand, Philippines and Indonesia. The new members of ASEAN, namely Vietnam, Lao PDR, Myanmar and Cambodia have been given the same 10 year flexibility to reduce tariffs from the time of their membership of ASEAN. In the case of Vietnam, it will reduce tariffs to 0-5% by 2006, Loa PDR and Myanmar (2008) and Cambodia (2010). This means that ASEAN Member States shall have common effective tariffs among themselves in AFTA, but the level of tariff a with non-ASEAN countries shall continue to be determined individually.

WHAT KIND OF EXCLUSIONS OR EXCEPTIONS ARE ALLOWED UNDER THE CEPT SCHEME?

• General Exceptions. A Member States may exclude a product which it considers necessary for the protection of its national security, the protection of public morals, the protection of human, animal or plant life and health, and the protection of articles of artistic, historic or archaeological value. The provision on General Exceptions in the CEPT Agreement is consistent with Article X of the General Agreement on Tariffs and Trade (GATT). Malaysia has excluded weapons and alcoholic beverages for concession under the CEPT scheme.

• Temporary Exclusions. Member States, which are temporarily not ready to include certain sensitive products in the CEPT Scheme, may exclude such products on a temporary basis. Products in the Exclusion List cannot enjoy the CEPT tariff from other ASEAN Member States. The Exclusion List does not in any way relate to products covered under the General Exceptions provision.

• Note: All manufactured and processed agricultural products for the original six member states will be included in the CEPT scheme by 1 January 2000.

  WHAT ARE THE CONDITIONS FOR A PRODUCT TO BE ELIGIBLE FOR CONCESSIONS UNDER THE CEPT?
  
  There are three (3) conditions:

• The product has to be included in the Inclusion List of the exporting and the importing countries and must have a tariff of 20% and below;

• It has to have a program of tariff reduction approved by the AFTA Council;

• It has to be an ASEAN product, i.e., it has to satisfy the local content requirement of 40%.

  WHAT IS THE LOCAL CONTENT REQUIREMENTR FOR CEPT?

  The CEPT Scheme has set a local content requirement of 40%,that is a product is considered as originating from ASEAN Member States if at least 40% of its content originates from any Member State.

  The 40% local content requirement refers to both single country and cumulative ASEAN content.

  RULES OF ORIGIN FOR CEPT?
  
  In determining the origin of products eligible for the CEPT Scheme under the Agreement on the CEPT, the following Rules shall be applied:

  Originating Products

  Products under the CEPT imported into the territory of a Member State from another Member States, which are eligible for preferential concessions, if they conform to the origin requirements under any one of the following conditions:

  ·        Products wholly produced or obtained in the exporting Member State.

  ·        Products not wholly produced or obtained in the exporting Member State.

  Wholly Produced or Obtained

  The following shall be considered as wholly produced or obtained in the exporting Member States:

  1.      Mineral products extracted from its soil, its water or its Seabees;

  2.      Agricultural products harvested there;

  3.      Animals born and raised there;

  4.      Products obtained from animals referred to in paragraph above;

  5.      Products obtained by hunting or fishing conducted there;

  6.      Products of sea fishing and other marine products taken from the sea by its vessels;

  7.      Products processed and/or made on board its factory ships exclusively from products referred to in paragraph (f) above;

  8.      Used articles collected here, fit only for the recovery of raw materials;

  9.      Waste and scrap resulting from manufacturing operations conducted there; and

  10.  Goods produced there exclusively from the products referred to in paragraph (1) to (10) above.

  

  Not Wholly Produced or Obtained

  ·        A product shall be deemed to be originating from ASEAN Member States, if at least 40% of its content originated from any Member States. For the purpose of implementing this provisions, products worked on and processed as a result of which the total value of the materials, parts or produce originating from non-ASEAN countries or of undetermined origin used does not exceed 60% of the FOB value of the product produced or obtained and the final process of the manufacture is performed within the territory of the exporting Member States.

  ·        The value of the non-originating materials, parts or produce shall be:

  a.       The CIF value at the time of importation of the products or importation can be proven; or

  The earliest ascertained price paid for the products of undetermined origin in the territory of the Member State where the working or processing takes place.

  Cumulative Rule of Origin

  Products which comply with origin requirements which are used in a Member State as inputs for a finished product eligible for preferential treatment in another Member States shall be considered as products originating in the Member States where working or processing of the finished product has taken place provided that the aggregate ASEAN content of the final product is not less than 40%.

  Note: Exporters of textile and textile products can use the substantial transformation criterion as an alternative to the 40% local content requirement. This criterion is to be applied based on the CEPT Rules of origin for textile and textile products and the ASEAN single list.

  Direct Consignment

  The following shall be considered as consigned directly from the exporting Member State to the importing Member State:

           i.            If the products are transported passing through the territory of any other ASEAN country;

           ii.           If the products are transported without passing through the territory of any other non-ASEAN country;

           iii.          The products whose transport involves transit through one or more intermediate non-ASEAN   countries with or without transshipment or temporary storage in such countries, provided that:

  ·        The transit entry is justified for geographical reason or by consideration related exclusively to transport requirements;

  ·        The products have not entered into trade or consumption there; and

  ·        The products have not undergone any operation there other than unloading and reloading or any operation required to keep them in good condition.

  Certificate of Origin

  A claim that products shall be accepted as eligible for preferential concession shall be supported by a Certificate of Origin issued by a government authority designated by the exporting Member.

  HOW TO EXPORT UNDER CEPT?

  
  
  Establish the tariff classification of product

  Product classification is normally in accordance with the Harmonised Commodity Description and Ceiling System (HS).

  Check the product coverage

  Not all products are eligible for preferential treatment under the CEPT. The exporter must therefore check, before he proceeds further, whether his goods are included under the inclusion list of Malaysia and the importing ASEAN countries.

  Comply with Rules of Origin

  The Rules of Origin are an essential parts of the CEPT scheme in order to ensure that the tariff concession under the CEPT are confined to products wholly or satisfy the ASEAN content requirement by the exporting company. Strict enforcement of rules of origin is necessary to prevent products originating from third countries and traded in transit benefit under the CEPT.

  
  HOW DO MANUFACTURERS EXPORTERS APPLY FOR CEPT SCHEME?
  The claim for CEPT tariff concession must be supported by appropriate documentary evidence as to origin and consignment. Form D is a certificate that is accepted as evidence of origin by all ASEAN member states to obtain CEPT scheme. In Malaysia the certifying authority for CEPT Form D is the Trade Support Division of the Ministry of International Trade and Industry (MITI). This service is also provided at MITI branch Offices in Penang, Ipoh, Kota Bharu, Johor Bahru, Kuantan, Kuching and Kota Kinabalu.

  Step 1 : Registrations

  Manufacturer/Exporters are required to submit CEPT Application Form to Trade Support of MITI or MITI’s branch offices. The form could be obtained at:

  MITI’s Service Counter,
  Trade Support,
  Ground Floor,
  Ministry of International Trade and Industry,
  Block 10, Jalan Duta
  50622 Kuala Lumpur and MITI’s branch offices

  Manufacturers/exporters who qualify will be given an approval letter.

  Step 2 : Endorsement of CEPT Form D

  Form D is only valid for tariff concession if it has been endorsed by MITI. Form D can be purchased from Federation of Malaysian Manufacturers (FMM) at:

  Wisma FMM,
  No. 3, Persiaran Dagang,
  PJU9, Bandar Sri Damansara,
  52200, Kuala Lumpur.

  Manufacturers/exporters must submit the following documents with CEPT Form D to MITI for endorsement :

  • A copy of MITI approval letter

  • Customs declaration (K2) - duplicate

  • Invoice - 1 copy

  • Bill of Lading - 2 copies

  
  WHERE TO SEEK ADVICE?
  For further information you may contact:- 

  • MITI’s Service Counter at Ground Floor,
    Trade Support
    Ministry of International Trade and Industry (MITI),
    Block 10,
    Jalan Duta,
    50622 KUALA LUMPUR

  Tel : 03-651 6022
  Fax : 03-651 3012

  Officers : En. Azmi (ext. 4983)
                  Pn. Zainab (ext. 4992) 

  • Trade Support of MITI at 2^nd Floor,
    Block 10, Jalan Duta
    50622 KUALA LUMPUR

  Tel : 03-651 6022
  Fax : 03-651 3012

  Officers : En. Abdul Kahar Abdullah (ext. 4925) 

  • MITI’s Branch Offices:

  1.        Ipoh - 05-241 7751 (En. Mu’az Hj. Zawawi)

  2.        Penang - 04-262 5131 (En. Abd. Jamil Abd. Halim

  3.        Kuantan - 09-513 0851 (En. Syed Ahmad Fuad Syed Toha)

  4.        Kota Bharu - 09-748 3457 (En. Mohd. Yunus)

  5.        Johor Bahru - 07-2244 639 (En. Yusof Aman)

  6.        Kota Kinabalu - 088-236 758 (En. Md. Idrus Ismail)

                  7.      Kuching - 082-257 164 (Pn. Hasnah Salleh)