Taxes all the way down the line?

Hurting the wallet: When logistics services become taxable in March, consumers may end up paying more for many things. — FAIHAN GHANI/The Star

PETALING JAYA: Logistics services underlie almost all consumption, so when this previously untaxed sector becomes taxable in March, consumers may end up paying more for many things.

This is because the current sales and services tax (SST) regime does not eliminate the cascading tax effect, or “tax on tax”, on every production stage.

Industry players have been calling for a business-to-business (B2B) exemption to avoid the “cost-passing” down the logistics chain to consumers.

However, there has been no confirmation of an exemption from the government so far.

“The problem that confronts our members is, how do we charge the service tax come March,” said Datuk Tony Chia, Federation of Malaysian Freight Forwarders president, yesterday.

The scope of taxable services has also been expanded and Chia said some services not taxable previously will now be taxable.

This includes shipping services, non-vessel operating common carriers (NVOCC), freight forwarding, transport, and cold chain logistics.

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“With the expanded scope of taxable services, a logistics services provider would have to charge the tax to the user of its services, which is ultimately the importer or trader or manufacturer.”

Unlike the goods and services tax (GST) where there is input and output tax along the chain, Chia said the absence of the B2B exemption may cause an aggregated compounded service tax at the end of the chain of transactions that would be borne by the users of logistics services.

For example, transporting a product from the factory to a warehouse will be charged a 6% tax.

Then the warehousing facility will also charge a 6% tax.

This will continue down the line, so without a B2B exemption, the same 6% service tax will be charged on transportation to the distributor, then to the customers like sellers and consumers.

“There are other taxable services along the logistics chain, such as forwarding and shipping agent services.

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“This is where the cascading tax effect happens,” he said.

When asked, Chia noted that federation members are still unsure how and to which segment of logistics services the service tax is going to apply.

“In our recent two meetings with the Finance Ministry, there were proposals for the B2B exemption for similar services in a group.

“We also proposed a flat rate of 6% for current taxable logistics services and the expanded taxable services, and no service tax for export shipments.

“There has been no news yet,” he said.

Chia said the ministry should finalise whether all logistics services providers, such as shipping lines, NVOCC, freight forwarders, warehouse operators, transport operators and customs agents are regarded to be in the same group to benefit from the B2B exemption.

“Once we have a clear definition of the B2B exemption, we will have a clearer picture on how to charge the SST,” he said.

Chia also said industry players have yet to receive any confirmation about any amendments to the SST Act to incorporate and reflect the necessary changes.

“Everything is up to interpretation, even by the Customs Department and the logistics community,” he said.