Revisions to Service Tax Policy for Logistics Sector

The Royal Malaysian Customs Department has published revisions to its policy on service tax exemption for logistics sector. The impact of these notable changes is an opportunity for businesses from all sectors that use logistics service providers to revisit their arrangements and potentially achieve cost savings in the supply chain.

The document dated 23rd August 2024 makes the following changes retrospectively from 1st March 2024 (being the effective date for introduction of service tax on logistics sector):

1. The scope of Door-to-Door exemption is clarified to be applicable even if the service provider uses the service of a third party, provided criteria such as ‘single billing invoice’ are met. With this, businesses should revisit the commercial arrangement and service tax treatment for various international shipments including:

(i) Trucking activities, particularly for shipments involving Thailand or Singapore.

(ii) Freight forwarding arrangements for export/import shipments.

(iii) Courier services.

2. With regards to logistics services provided within or between Special Areas (i.e. Free Zones, Bonded Warehouse & ‘LMW status’ factories) and Designated Areas (the duty free islands), the exemption does not apply for:

(i) Logistics services in a Special Areas or a Designated Areas provided by a service provider who has a principal place of business in Principal Customs Area; and

(ii) Logistics services provided by a service provider who has a principal place of business in a Special Areas or a Designated Areas to a customer whose principal place of business is in Principal Customs Area.

Collectively, the restrictions above mean a very limited practical application of the SA/DA exemption for logistics services involving Free Zones, Bonded Warehouse, LMW and duty-free islands. Businesses should be diligent in assessing their eligibility for exemption.

3. Scope of exemption for logistics services in relation to transit activity is being confined to shipments which does not involve break-bulking.

The information above is in summary form. Refer to the Customs website for full list of criteria for exemption.

There has been multiple rounds of evolution of exemption policy since the introduction of service tax on logistics sector on 1st March 2024. It is important to understand the new information not only in isolation, but also in the context of the principal Act and relevant Ministerial Orders.

Kindly obtain professional advice based on the facts of your respective case to remain compliant and make good on any past transactions. Businesses should also undertake the needful analysis to ensure the supply chain cost is tax-efficient, which ultimately optimises product cost and a potential competitive advantage in pricing of final products to customers.