The Royal Malaysian Customs Department recently enhanced the service tax policy on logistics services, effective 1 March 2024.
This enhancement aims to streamline the service tax treatment for various logistics services and provide exemptions for specific scenarios to support the logistics industry.
Key points:
1. Scope of taxable logistics services:
The amended service tax regulations now combine the provision of logistics services and transportation, delivery, or distribution of goods under a single item (Item 1(a)) in Schedule 1, Group J: Logistics Services of the Service Tax Regulations 2018.
2. Expansion of B2B exemption:
The scope of the business-to-business (B2B) exemption for Group J: Logistics Services has been expanded to cover the provision of services under the same item, such as logistics services, port and airport management, warehousing, freight forwarding, shipping, aviation, cold chain facilities, and transportation or distribution of goods.
3. Exemption for services in Special Areas and Designated Areas:
All services under Group J: Logistics Services provided within and between Special Areas, Designated Areas, or between Special Areas and Designated Areas are now exempt from service tax, except for Customs Agent services.
4. Door-to-door delivery services exemption:
Service tax exemption is granted for door-to-door delivery services that involve:
Delivery of goods from outside Malaysia to outside Malaysia or vice versa, without going through a third party.
Delivery of goods by the same network service provider from the consignor to the recipient.
The movement of goods using the same airway bill, bill of lading, or consignment note from the consignor to the recipient.
The same invoice is used for delivery charges from the consignor to the recipient (single billing invoice).
Examples illustrating points (i) - (iv) above based on our interpretation. (Suggest to consult Customs for a better understanding):
(i) Example for (i):
Sending goods from China to Malaysia directly without involving any third-party courier service.
(ii) Example for (ii):
A transport company delivers goods from a seller (consignor) to a buyer (recipient) within the same delivery network without involving additional intermediaries.
(iii) Example for (iii):
Shipping goods from a supplier in Singapore to a buyer in Malaysia using the same airway bill or bill of lading throughout the entire journey, ensuring consistency and traceability.
(iv) Example for (iv):
Charging the delivery fee for shipping a product from a seller to a buyer using a single billing invoice that includes both the cost of the item and the delivery charges.
5. Exemption for transit activities:
Logistics services related to transit activities, where goods arrive in Malaysia and subsequently move to another place outside Malaysia via land, sea, or air transport, are exempt from service tax.
6. Exemption for ocean freight charges:
Service tax exemption is granted on ocean freight charges for all goods transported by sea, limited to the following routes:
Peninsular Malaysia to Sabah, Sarawak, or Labuan
Sabah, Sarawak, or Labuan to Peninsular Malaysia
Between Sabah, Sarawak, and Labuan
Conclusion:
The enhancements to the service tax policy on logistics services clarify the scope of taxable services and offer exemptions for specific scenarios.
Logistics service providers should familiarise themselves with these changes to ensure compliance and leverage the available exemptions.
The exemptions for door-to-door delivery services, transit activities, and ocean freight charges on specific routes are expected to support the growth and competitiveness of the logistics industry in Malaysia.
"Service Tax Policy No. 4/2024: Enhancement of Service Tax Policy on Logistics Services" in English version:
Commencing 26 February 2024, under section 8 of the Service Tax Act (STA) 2018, the Minister has declared logistic services as a taxable service.
The Minister of Finance, under the powers conferred by the STA 2018, has enhanced the service tax policy on logistics services as follows:
In line with the Minister's authority under section 91 of the STA 2018, amendments have been made to the Service Tax Regulations 2018 by consolidating services listed under item 1(b) into item 1(a) under Group J: Logistics Services, First Schedule, Service Tax Regulations 2018 as one item.
a. Original item before amendment:
b. Item after amendment: (1) Taxable person
ii. In line with the Minister's authority under section 34(1) of the STA 2018, amendments have been made to the Service Tax (Exemption from Payment of Tax) Order 2018, expanding the B2B exemption scope for Group J: Logistics Services to cover the provision of services under the same item. The same item refers to the division of service providers as listed below:
In line with the Minister's authority under sections 51 and 56 of the STA 2018, amendments have been made to the Service Tax (Imposition of Tax for Taxable Services Relating to Designated Areas and Special Areas) Order, all services under Group J: Logistics Services provided within and between Special Areas/Designated Areas or between Special Areas and Designated Areas or vice versa are not subject to service tax except for Customs Agent services.
Customs Agent services provided within and between Special Areas/Designated Areas or between Special Areas and Designated Areas or vice versa remain subject to service tax.
In line with the Minister's authority under sections 34(3)(a) and 34(4) of the STA 2018, service tax exemptions are approved for:
Door-to-door delivery services for deliveries involving: is not subject to service tax.
The provision of delivery services from a location outside Malaysia to a location within Malaysia or from a location within Malaysia to a location outside Malaysia without involving third parties;
The provision of delivery services by the same network service provider from consignor to receiver;
The goods journey using the same airway bill/bill of lading/consignment note from consignor to receiver and
The use of the same invoice for delivery charges from consignor to receiver (single billing invoice)
Logistics services related to transit activities, i.e., goods arriving in Malaysia and subsequently to another location outside Malaysia via land/sea/air transport mode, are not subject to service tax.
Exemption from paying service tax is granted on ocean freight charges for all goods sent using sea transportation mode limited to the following routes/destinations:
Peninsular Malaysia to Sabah/Sarawak/Labuan;
Sabah/Sarawak/Labuan to Peninsular Malaysia; and
Travel between Sabah, Sarawak, and Labuan.
The effective date of this policy amendment is from 1 March 2024.
Service tax exemptions are granted as follows for backward transactions related to this policy amendment:
Logistic service recipients are exempted from paying service tax under section 34(3)(a), Service Tax Act 2018, starting from 1 March 2024, and logistic service providers are exempted from imposing service tax under section 34(4), Service Tax Act 2018, starting from 1 March 2024;
Any service tax collected from customers from 1 March 2024 to 31 March 2024 must be remitted to the Royal Malaysian Customs Department under section 26, Service Tax Act 2018; and
No service tax refunds are granted to any party who has paid service tax on any logistics services from 1 March 2024 to 31 March 2024.
Disclaimer: This issued service tax policy is subject to any amendments if there are any changes to the relevant policy.
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