THE Federation of Malaysian Manufacturers (FMM) has called for the government to defer the scheduled 2% sales and service tax (SST) hike for logistics services pending further study to reduce its impact on manufacturers and consumers.
Calling the hike “burdensome”, FMM president Tan Sri Soh Thian Lai said the increase in tax would impact all services along the logistics supply chain which include forwarding agent, warehouse operators, shipping lines (domestic), shipping agents, port and airport services, freight forwarding, haulage services, among others.
“Logistics, unlike the other taxable services such as consultancy, legal, public accountant etc, constitutes a large portion of 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 all along the supply chain domestically and in trade (import and export),” he said in a statement on Tuesday (Jan 30).
“For manufacturers, logistics costs constitute between 8% to 15% of operations costs depending on type of product and its value. A low-value consumer product will incur higher logistics costs compared to industrial products with high-value or high-volume.”
He 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 remarked.
Effective March 1, the SST will see an increase 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 Datuk Seri Anwar Ibrahim at the tabling of the national budget in October last year.
In his statement, Soh further noted 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 remarked.
Soh noted that 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 pointed out.
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. – Jan 30, 2024
Main pic credit: The Edge Malaysia
