MOF refining service tax for the logistics sector to mitigate burdens on the public

The Ministry of Finance has announced refinements to Service Tax exemptions aimed at alleviating the financial burden on the public and reducing tax cascading in the logistics sector.

Finance Minister II, Datuk Seri Amir Hamzah Azizan, highlighted that these exemptions would also maintain the competitiveness of Malaysia’s services sector.

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The amendments include merging logistics services under a single item to widen exemptions for business-to-business (B2B) activities.

Service tax and ocean freight

Additionally, services provided in or between Special Area/Designated Area are exempt from Service Tax, except for Customs Agent services.

Furthermore, exemptions for ocean freight charges for certain delivery routes and maintenance services for residential buildings have been provided.

The increase in Service Tax rate from 6.0 to 8.0 percent, effective March 1, mainly affects discretionary services and B2B activities, while essential services like food and beverages remain unaffected.

“To further preserve the country’s competitiveness, the government will also not impose Service Tax in free trade zones,” he said in a statement today.

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Tax impact

To ease the tax impact on daily logistics operating activities, and ultimately the consumers, the government has agreed on the amendments to Group J: Logistics Services in First Schedule, Service Tax Regulations 2018.

“Item 1(a) in relation to logistics services, and Item 1(b) on 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 (B2B) 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 previously listed under Item 1(b),” it said.