During the closing speech of the Royal Address in the Dewan Rakyat on 11 March 2024, YB Senator Datuk Seri Amir Hamzah, the Second Finance Minister, announced that the Ministry of Finance (MOF) will enhance the scope of service tax exemptions for the logistics sector to reduce the impact of double taxation.
As announced in Budget 2024, logistics services are subjected to a service tax at a rate of 6% starting from 1st March 2024.
Based on feedback received from 25 engagement sessions with various stakeholders including the logistics sector prior to the implementation of this tax change, the Government has granted service tax exemptions for:
1. Logistic services for directly exported goods;
2. Logistic services for transhipment activities;
3. Logistic services for transit activities;
4. Door-to-door logistic services; and
5. Food and beverage delivery services via e-commerce platforms.
To mitigate the negative impact on the daily operations of logistics activities, the Government has also provided a facility for exemption between businesses ("business to business" or B2B) where logistics service providers do not need to pay service tax on the acquisition of the same logistic service components.
Based on feedback and views submitted by various parties including Members of Parliament, the Government now agrees to expand the scope of B2B logistic service exemptions to cover the provision of services under the same details.
This is to reduce incidents of double taxation or the cascading effect of imposing tax on tax for several layers of the logistic supply chain.
For example, with the expansion of the B2B exemption scope, freight delivery service providers not only receive exemptions for freight services but also qualify for exemptions for other services such as warehousing, ports, shipping, and cold chain facilities that fall under the same details as the freight service.
The Ministry of Finance will continue to hold engagement sessions with the industry, especially from the logistics sector, to finalize amendments to the Guidelines to enable enforcement.
Furthermore, the Government understands the need for industry players to have sufficient time to amend their computer systems. Therefore, newly registered logistic service providers are given a one-month preparation period and will only be subject to a 6% service tax starting from 1 April 2024.
The Ministry of Finance hopes that this special arrangement will continue to support the growth of the country's logistics sector while ensuring that consumers, including traders, are not burdened.
Examples: 1. Logistic services for directly exported goods:
These are services involved in the transportation, handling, and management of goods that are exported directly from their origin to another country or destination without passing through any intermediate locations.
For example, a logistic company may provide shipping, warehousing, and customs clearance services for products manufactured in Malaysia and directly exported to the United States.
2. Logistic services for transhipment activities:
Transhipment services involve the transfer of goods from one mode of transportation to another or from one vessel to another at an intermediate port or location.
For instance, a logistic company operating in a major port may offer transhipment services to transfer containers from large cargo ships to smaller vessels for distribution to various destinations.
3. Logistic services for transit activities:
Transit services refer to the movement and handling of goods passing through a specific location or country en route to their final destination.
For example, a logistic company may provide warehousing, customs clearance, and transportation services for goods passing through Malaysia on their way from China to Australia.
4. Door-to-door logistic services:
These services involve the seamless transportation and delivery of goods directly from the supplier's location to the recipient's doorstep by the supplier.
It includes activities such as packaging, pickup, transportation, and delivery.
5. Food and beverage delivery services via e-commerce platforms:
These services involve the delivery of food and beverages ordered online through e-commerce platforms directly to the customer's location.
It encompasses activities such as order processing, food preparation, packaging, and delivery. For instance, a food delivery service like Uber Eats or DoorDash facilitates the ordering and delivery of meals from restaurants to customers' homes using an online platform.