KUALA LUMPUR – The Finance Ministry has announced refinements to the scope of service tax exemptions in a bid to alleviate the burden on citizens and bolster the competitiveness of the nation’s services sector.
Finance Minister II Datuk Seri Amir Hamzah Azizan said the move was targeted at mitigating the direct impact on the public’s living expenses and to address cascading tax incidences within the logistics industry.
“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 also not impose service tax in free zones,” he said in a statement today.
Among the refinements the government has agreed upon are additional service tax exemptions for the logistic and maintenance sectors.
For service tax exemption for the logistic sector, amendments will be made to Group J: Logistics Services in the First Schedule of the Service Tax Regulations 2018.
This involves merging Item 1(a) concerning logistics services and Item 1(b) regarding delivery, distribution or transportation services 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, 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,” he added.
Logistics services within or between special areas or designated areas are generally not taxed, except for customs agent services, which are still subject to service tax.
With that, Amir Hamzah said 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.
“Further, the exemption for ocean freight charges is applicable only for goods transported by sea between Peninsular Malaysia and Sabah/Sarawak/Labuan, as well as within Sabah, Sarawak, and Labuan,” he said.
These enhancements are additions to the widening of the service tax exemption scope for logistics sectors, as announced on March 11.
He said the government had also agreed to provide service tax exemptions for maintenance services for items such as repairs to residential buildings, sinking funds, and maintenance services related to land or buildings for residential purposes provided by developers, joint management bodies or residents’ 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 is concentrated on services that are discretionary in nature and business-to-business activities that do not directly impact the public.
The increase does not involve key essential services that are part and parcel of the public’s lifestyle, such as food and beverages, telecommunications and vehicle parking, Amir Hamzah said. – March 31, 2024