KUALA LUMPUR: The decision to exempt certain logistics and maintenance services from service tax could lead to lower tax revenue and have the government relook spending for the year.
Economists warn that while the exemption might provide short-term relief for consumers and businesses, it could create challenges for the government, requiring it to seek alternative revenue sources or cut expenditure to maintain fiscal stability.
Malaysia Association of Tax Accountants vice-president Dr Mohd Fairuz A. Razak said sectoral impact on government coffers would vary, depending on the size and importance of the logistics and maintenance sectors in the overall economy.
"If these sectors are relatively small compared to others subject to the service tax, the impact on government revenue may be limited. Conversely, the effect could be more substantial if they constitute a significant portion of economic activities."
Broader solutions needed
While tax exemptions on logistics and maintenance services could ease the cost of living pressures, Fairuz said they might not be the solution to addressing broader economic challenges.
He said other measures, such as income support, subsidies and policies targeting inflation and housing costs, might be necessary for comprehensive relief.
"It's essential to note that the impact will depend on various factors, such as the extent of the tax exemptions, how businesses respond to these changes and broader economic conditions.
"While tax exemptions can provide some relief, they may not completely solve the challenges associated with the rising cost of living, which a wide range of factors including global economic trends, government policies and socioeconomic factors can influence."
Reduced tax collection
KPMG head of tax in Malaysia Soh Lian Seng said the government was expected to collect about RM3 billion from the service tax increase. But the exemptions will mean a reduction in tax collection.
Soh said this demonstrated the willingness of the government to listen to the plight of the people even as it forged a way forward in progressive tax reforms.
"I welcome this latest move as imposing service tax will impact the end consumer because logistics play an integral part in the whole supply chain.
"As for maintenance or repair services for residential purposes, the exemption will provide a respite for the people," he said.
Further tax exemption reshapes logistics value chain
Tratax Sdn Bhd executive director Renganathan Kannan said the service tax waiver for certain logistics services was expected to reduce the cascading tax effect in the industry and impact the value chain of enterprises.
He said the exemption was a positive step that allowed business operators to re-evaluate and revise pricing arrangements to maintain competitiveness.
"It is important to note that the service tax collected by logistic service providers between March 1 and March 31 must be remitted to the Customs and no refunds will be entertained for this period," he added.
The Finance Ministry announced on Sunday a wider scope of tax exemption on logistics and maintenance services.
Logistics management service supply chain, airport and port service operators, warehousing services, freight forwarders, shipping, aviation or cold chain services will no longer incur service tax for acquiring delivery or distribution or transporting goods services, according to the ministry.
Tax exemptions are also given to maintenance services for repairs of residential buildings, sinking funds and maintenance services related to land or buildings for residential purposes provided by developers, joint management bodies or resident associations.
Finance Minister II Datuk Seri Amir Hamzah Azizan said the exemptions, particularly for the logistics sector and maintenance services, are part of the government's efforts to mitigate the tax effect on the cost of living while maintaining the competitiveness of the services sector.
"To further preserve the country's competitiveness, the government will also not impose service tax in free zones," he said.