More exemptions from service tax

KUALA LUMPUR: The scope of service tax exemptions has been further refined to include logistics service providers for their delivery, distribution or transporting services.

The Finance Ministry said the expanded scope will reduce the direct impact on the rakyat’s living cost and cascading tax incidences in the logistics sector.

“The service tax exemptions for the logistics sector and maintenance services are provided as the government aims to mitigate the tax’s effect on the rakyat’s cost of living and at the same time, maintain the competitiveness of the nation’s services sector.

“To further preserve the country’s competitiveness, the government will not impose service tax in free zones,” said Finance Minister II Datuk Seri Amir Hamzah Azizan in a statement.

In order to ease the tax impact on daily logistics operating activities, and ultimately on consumers, the ministry said the government has 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 the service tax except for Customs Agent services, which remain taxable,” said Amir.

He also said with this, 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, will benefit from this exemption.

It said the exemption for ocean freight charges for all goods delivered by sea mode are 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,” said Amir.

With regard to maintenance services, the additional service tax exemption covers 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 premises structure such as lifts, air-conditioners, and water heaters are not subject to service tax,” said Amir.

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, he added.

He also said that 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.

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