Service Tax Update on Logistic Services

As everyone would be aware, at present, the taxable services have been expanded to cover amongst others, logistic services. You may refer to our earlier Tax Whiz (here) for details.

The Ministry of Finance (“MOF”) has recently issued a Media Release on 11 March 2024 in relation to logistic services, which states amongst others, the following:

• The scope of Service Tax exemption in the logistics industry includes:

- Logistics services for directly exported goods;

- Logistics services for transshipment activities;

- Logistics services for transit activities;

- Door-to-door logistics services; and

- Food and beverage delivery services via e-commerce.

• In addition, the scope of the Business-to-business (“B2B”) exemption on logistic services is extended to cover the provision of services under the same item.

• The example provided is that – freight forwarders are not only exempted from (payment of Service Tax on) freight services (acquired for onward supply, i.e. B2B purposes), but also eligible for exemption on the other services acquired such as warehousing, port, shipping, and cold chain facilities which are in the same item as the freight service.

• Newly registered logistics service providers are given a one (1) month preparation period and only required to charge Service Tax from 1 April 2024.  This is to allow sufficient time for systems update.

• MOF will continue engaging with the relevant industries in order to finalise the amendments to be made to the guidelines.

Please click on the above header link for a copy of the Media Release at the MOF’s official portal (only available in Malay language) . 

Our observations

This update by the MOF is welcome news indeed. Nevertheless, there are some areas to consider:

1. In respect of the B2B exemption, whilst it is not specifically clarified, it is assumed that the “item” mentioned is referring to the respective taxable services prescribed under Group J, i.e.:
- item (a) all logistic services
- item (b) delivery, distribution or transportation of goods services including courier services
- item (c) delivery, distribution or transportation of goods services including courier services through the E-Commerce platform
- Customs agent services 

As it stands, it remains to be seen as to whether a freight forwarder who is registered under logistic services (and not registered under Customs agent services), obtained Customs agent services as part of the freight forwarding services to his customer would qualify for the B2B exemption on the Customs agent services.

2. In respect of charging Service Tax on logistic services from 1 April 2024, it is specifically mentioned “newly” registered logistics service providers. It remains to be seen whether for the existing Service Tax registered person who are only required to add the “logistic service” as a new taxable service (and not new Service Tax registrant) would be required to charge Service Tax from 1 March 2024 – as per the Service Tax Policy 1/2024.

It is anticipated that further clarifications will be provided by the MOF and the Royal Malaysian Customs Department (“RMCD”), hopefully soon. Affected businesses are encouraged to keep themselves updated with this ongoing and crucial developments.

Evelyn Lee
Partner - Penang Tax
evewflee@kpmg.com.my
+603 7721 2399

Crystal Chuah Yoke Chin
Associate Director - Ipoh Tax
ycchuah@kpmg.com.my
+603 7721 2714

Regina Lau
Partner - Kuching & Miri Tax
reglau@kpmg.com.my
+603 7721 2188

Titus Tseu
Executive Director - Kota Kinabalu Tax
titustseu@kpmg.com.my
+603 7721 2822

Ng Fie Lih
Partner - Johor Tax
flng@kpmg.com.my
+603 7721 2514