KUALA LUMPUR: The Federation of Malaysian Manufacturers (FMM) has called for the government to defer the imposition of six per cent service tax on logistics services come March 1, 2024, saying it will directly increase costs for goods sold domestically.
Calling it burdensome, FMM said the service tax will impact all services along the logistics supply chain which include forwarding agent and warehouse operators among others.
Based on feedback received from members, FMM said the expansion of taxable services to include logistics services at the rate of six per cent will directly increase the costs of the final product for goods sold domestically especially fast-moving consumer goods (FMCG) and export market, making Malaysian exports less competitive.
"A tax of six per cent on logistics services incurred at every level to move goods across the supply chain will drive up logistics costs and unless exemption is provided to manufacturers already subject to sales tax, businesses will have no choice to pass on the tax burden by increasing the price of consumer goods (domestic) and export price as well," FMM said.
FMM said it acknowledged that the Ministry of Finance (MOF) is considering providing business to business (B2B) tax exemption for service providers that will be advantageous for integrated logistics service (ILS) companies offering comprehensive logistics services.
"However, the B2B exemption for service providers will not be advantageous for manufacturers. As the ultimate customer of the logistics service provider, manufacturers will still be obligated to bear the tax burden, irrespective of whether the services are provided by integrated logistics service (ILS) providers or individual domestic logistics companies," it further stated.
In this regard, FMM has recommended for the B2B tax bubble to be extended across from the services sector to the manufacturing sector and vice versa so that any business with Sales and Service Tax (SST) license number are not charged sales or service tax.
This will mean only the wholesale, retail and final consumer or non-registered SST business will pay the SST.
FMM requested that the service tax on logistics services be deferred to further study the exemption mechanism to help manufacturers reduce the tax burden. "Considering that the service tax on logistics impacts not only manufacturing operations but its entire supply chain, we appreciate 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," FMM said.