Manufacturers’ group urges govt to postpone SST hike for logistics services
Published on: Tuesday, January 30, 2024
By: FMT
The hike in service tax, especially for logistics services, has been viewed as burdensome and likely to increase costs along the logistics supply chain.
PETALING JAYA: The Federation of Malaysian Manufacturers (FMM) has urged the government to defer the scheduled 2% sales and service tax (SST) increase for logistics services pending further study to reduce its impact on manufacturers and consumers.
Expressing concern about the expansion of taxable services to include the logistics sector, FMM president Soh Tian Lai said the move would likely increase costs across the supply chain, affecting domestic goods sold and reducing the competitiveness of Malaysian exports.
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“Logistics, unlike the other taxable services such as consultancy, legal, public accountancy etc., constitutes a large portion (8% to 15%) of the operations cost as it is a recurring cost for services required by manufacturers to be paid to multiple logistics service providers as they move goods along the supply chain domestically and in trade (import and export),” he said in a statement.
Soh said the tax hike would particularly affect businesses in Sabah and Sarawak, where logistics costs can reach as high as 25% due to additional shipment and transport costs.
Unless exemptions are provided, he said businesses would likely pass on the tax burden to consumers, resulting in increased prices for consumer goods domestically and export products.
“Considering that the service tax on logistics impacts not only manufacturing operations but its entire supply chain, we would appreciate it if the government could further consult with the industry to resolve all the concerns and introduce an effective exemption mechanism before the implementation of the taxation is finalised,” Soh said.
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Effective March 1, the SST will rise from 6% to 8% for all taxable services excluding food and beverages, telecommunication services and vehicle parking space services.
The SST hike was announced by Prime Minister Anwar Ibrahim at the tabling of the national budget in October last year.
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In his statement, Soh also said that FMM was informed during a previous engagement session with the finance ministry about the government’s consideration of exclusively exempting logistics service taxes for exports.
“While we welcome this proposal to provide exemption for exports, it is important for the service tax exemption to be granted for all trade transactions, including imports, due to the nature of manufacturing and trade as well as the availability of material sources,” he said.
Soh said FMM had recommended extending a business-to-business (B2B) tax exemption, currently applicable to logistics service providers, to cover the manufacturing sector and others as well.
“(This is) so that any business with an SST licence number is not charged sales or service tax. This will mean only the wholesale, retail and final consumer or non-registered SST business will pay the tax,” he said.
However, he acknowledged that FMM’s recommendations would require thorough examination and potential amendments to existing laws such as Sales Tax and Service Tax Acts and Regulations, or the formulation of supplementary legislation to support B2B tax exemptions.
“In this regard, we request that the service tax on logistics services be deferred to further study the exemption mechanism to help manufacturers reduce the tax burden,” he said.
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