Service tax exemption for logistics sector, maintenance services

KUALA LUMPUR: The Finance Ministry has refined the scope of Service Tax to benefit the logistics sector and maintenance services, offering service tax exemptions for both.

The ministry said the objective was to alleviate the direct impact on the rakyat’s living cost and cascading tax incidences in the logistics sector.

In order to ease the tax impact on daily logistics operating activities, and ultimately the consumers, the ministry said the Federal Government had agreed to amend Service Tax Regulations 2018 for Logistics Services (Group J) whereby Item 1(a) in relation to logistics services, and Item 1(b) pertaining to delivery or distribution or transporting services have been merged into a single item.

"By combining the two items into one, the exemption scope for business-to-business activities has been widened whereby logistics service providers classified under Item 1(a) are now no longer required to incur Service Tax for acquiring delivery or distribution or transporting services that previously had been listed under Item 1(b).

"Prior to this amendment, logistics service providers under Item 1(a) were entitled to tax exemptions for acquiring services under the same item only.

"All services under Group J, Logistics Services provided in or between Special Area or Designated Area, between Special Area and Designated Area, or vice versa are not subject to Service Tax except for Customs Agent services which remain taxable for Service Tax," the ministry said in a statement on Sunday (March 31).

The ministry shared that with this the Free Commercial Zones and Free Industrial Zones such as the Port Klang Free Zone and West Port in Selangor, as well as the Pasir Gudang Port in Johor, would benefit from this exemption.

It said the exemption for ocean freight charges for all goods delivered by sea mode were limited to Peninsular Malaysia to Sabah or Sarawak or Labuan and Sabah, Sarawak, Labuan to Peninsular Malaysia, as well as between Sabah, Sarawak, and Labuan.

"These enhancements are additions to the widening of Service Tax exemption scope for logistics sectors as announced on March 11 this year," it said.

In regards to maintenance services, the ministry said the additional Service Tax exemption include repairs of residential buildings, sinking funds and maintenance services related to land or buildings for residential purposes provided by developers, joint management bodies, or resident associations.

"With this, all maintenance and repair services at residential premises such as roof upgrades or for any item and fixture attached to or part of the residential premise’s structure such as lifts, air conditioners, and water heaters are not subject to Service Tax.

"The Service Tax rate’s increase from 6% to 8% that came into effect on March 1 this year is concentrated on services that are discretionary in nature and business-to-business activities that do not directly impact the people.

"The increase does not involve key essential services that are part and parcel of the Malaysian lifestyle such as food and beverage, telecommunications, and vehicle parking," it said.

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