Service Tax And It's Recent Implication On The Logistics Industry
- ThinkTx
- Aug 30, 2024
- 9 min read
Updated: Jun 17, 2025
Table of Contents:
Introduction
Service tax is a type of indirect tax that is imposed on certain services. This means that the tax is not directly paid by the consumer, but rather by the service provider who then passes the cost on to the consumer. In Malaysia, service tax is collected and remitted to the Royal Malaysian Customs Department (RMCD).
Despite being introduced in September 2018, service tax has not been widely discussed until now. The recent amendments have brought it back into the public spotlight, likely due to the increased number of businesses affected by the expanded scope.
The recent amendments to the service tax regulations have expanded the scope to include logistics services. Therefore, companies providing logistics services are now required to collect and remit service tax on their services.
Amendments to the Service Tax Policy for Logistics Services
The RMCD has announced several improvements to its service tax policy for logistics services in Service Tax Policy No. 4/2024 dated 29th March 2024. These changes aim to:
Eliminate double taxation | Eliminate cascading effects in the logistics supply chain | Provide tax exemptions for export-oriented companies |
The Government is taking steps to reduce the burden of service tax on both consumers and businesses. To achieve this, they have narrowed down the types of services that are exempted. This is aimed at easing the direct impact on people's daily expenses and preventing the tax from cascading up the supply chain in the logistics industry.
By exempting logistics and maintenance services from service tax, the Government hopes to soften the tax’s effect on consumers’ cost of living. This will help to maintain the affordability of essential goods and services. Additionally, exempting these services will also help to ensure that Malaysia’s service sectors remain competitive on a global scale.
To further promote competitiveness, the Government has decided not to impose service tax in Free Zones. This will provide businesses operating in these areas with a tax advantage, making them more attractive to investors and encouraging economic growth.
Additional Service Tax Exemption Scope for Logistics Sector
In order to ease the tax impact on daily logistics operating activities, and ultimately the consumers, the Government has agreed on the following: -
Amendments to Group J: Logistics Services in First Schedule, Service Tax Regulations 2018, whereby Item 1(a) in relation to logistics services, and Item 1(b) pertaining to delivery or distribution or transporting services have been merged into a single item.
By combining these two items into one, the exemption scope for Business-to-Business (B2B) activities has widened, whereby logistics service providers classified under Item 1(a) are now no longer required to incur service tax for acquiring delivery, distribution or transporting services that previously had been listed under Item 1(b).
Prior to this amendment, logistics service providers under Item 1(a) were entitled to tax exemptions for acquiring services under the same item only.
All services under Group J: Logistics Services provided in or between Special Area / Designated Area, between Special Area and Designated Area, or vice versa are not subject to service tax, except for Customs Agent services which remains taxable for service tax.
Service Tax Policy No. 4/2024 has been amended on 23rd August 2024 as below.
The service tax exemption for logistics services provided in or between Special Areas and Designated Areas has certain limitations.
Firstly, if a service provider based in the Principal Customs Area (the main part of the country) offers logistics services within a Special Area or Designated Area, the exemption does not apply. Similarly, if a service provider based in a Special Area or Designated Area provides logistics services to a customer based in the Principal Customs Area, the exemption is not available.
These restrictions significantly limit the practical use of the exemption for logistics services involving Free Zones, Bonded Warehouses, Licensed Manufacturing Warehouse (LMW) factories, and duty-free islands. Businesses operating in these areas should carefully review their specific circumstances to determine if they qualify for the exemption.
Special Areas include: -
o Any Free Zone under Subsection 2(1) of the Free Zones Act 1990;
o Any Licensed Warehouse under Section 65 of the Customs Act 1967;
o Any LMW under Section 65A of the Customs Act 1967; and
o Joint Development Area under Section 2 of the Malaysia – Thailand Joint Authority Act 1990.
Free Zone means any part of Malaysia declared under the provisions of Subsection 3(1) of the Free Zones Act 1990 to be: -
o A Free Commercial Zone; or
o A Free Industrial Zone.
The following are the Free Zones in Malaysia:
No. | Free Commercial Zone | Free Zone Authority
|
1. | Stulang Laut, Johor | Majlis Bandaraya Johor Bahru
|
2. | Pelabuhan Pasir Gudang, Johor | Johor Port Berhad
|
3. | Pelabuhan Tanjung Pelepas, Johor (Fasa I) | Pelabuhan Tanjung Pelepas Sdn Bhd
|
4. | Terminal 2, Pelabuhan Johor, Pasir Gudang, Johor
| Johor Port Berhad
|
5. | Tanjung Langsat, Johor Bahru, Johor | Johor Corporation
|
6. | Senai Airport City, Mukim Tebrau, Johor | Senai Airport City Sdn Bhd
|
7. | Lapangan Terbang Antarabangsa Sultan Ismail, Johor | Senai Airport Terminal Services Sdn Bhd
|
8. | Rantau Panjang, Kelantan | Majlis Daerah Pasir Mas
|
9. | Pengkalan Kubor, Kelantan | Majlis Daerah Tumpat
|
10. | Dermaga Air Dalam, Pulau Pinang | Suruhanjaya Pelabuhan Pulau Pinang
|
11. | Kargo MAS, Pulau Pinang | Malaysia Airports Holdings Berhad
|
12. | Kompleks Kargo Udara Kedua (KKUK), Pulau Pinang | Malaysia Airports Holdings Berhad
|
13. | North Butterworth Container Terminal (NBCT) | Suruhanjaya Pelabuhan Pulau Pinang
|
14. | Bukit Kayu Hitam, Kedah | Majlis Daerah Kubang Pasu
|
15. | Pekan Bukit Kayu Hitam, Kedah | Majlis Daerah Kubang Pasu
|
16. | Pelabuhan Utara, Selangor | Lembaga Pelabuhan Klang
|
17. | Pelabuhan Barat, Selangor | Lembaga Pelabuhan Klang
|
18. | Pelabuhan Selatan, Selangor | Lembaga Pelabuhan Klang
|
19. | Port Klang Free Zone (PKFZ), Selangor | Port Klang Free Zone
|
20. | MILS Logistik Hub, Selangor | Meriah Selalu Sdn Bhd (sebelum ini dikenali sebagai MISC Integrated Logistics Sdn Bhd)
|
21. | Lapangan Terbang Antarabangsa Kuala Lumpur | Malaysia Airports Holdings Berhad
|
22. | Tasik Kenyir, Terengganu | Lembaga Kemajuan Terengganu Tengah (KETENGAH)
|
23. | Pulau Layang-Layang |
|
24. | Pelabuhan Kuantan, Pahang | Lembaga Pelabuhan Kuantan
|
No. | Free Industrial Zone | Free Zone Authority
|
1. | Pelabuhan Pasir Gudang, Johor | Johor Port Berhad
|
2. | Pelabuhan Tanjung Pelepas, Johor (Fasa I) | Pelabuhan Tanjung Pelepas Sdn Bhd
|
3. | Pelabuhan Tanjung Pelepas, Johor (Fasa II) | Pelabuhan Tanjung Pelepas Sdn Bhd
|
4. | Pusat Petrokimia dan Industri Maritim Tanjung Bin (Fasa I)
| Johor Port Berhad |
5. | Lapangan Terbang Antarabangsa Sultan Ismail, Johor (Senai Airport Free Industrial Zone - SAFIZ)
| Senai Airport Terminal Services Sdn Bhd |
6. | Senai Airport City Fasa Satu, Mukim Senai, Johor | Senai Airport City Services Sdn Bhd
|
7. | Senai Airport City, Mukim Tebrau, Johor | Senai Airport City Sdn Bhd
|
8. | Batu Berendam, Melaka (Fasa I) | Invest Melaka Berhad
|
9. | Batu Berendam, Melaka (Fasa II) | Invest Melaka Berhad
|
10. | Batu Berendam, Melaka (Fasa III) | Invest Melaka Berhad
|
11. | Tanjung Kling, Melaka | Invest Melaka Berhad
|
12. | Seberang Perai, Pulau Pinang | Majlis Perbandaran Seberang Perai
|
13. | Bayan Lepas, Pulau Pinang (Fasa I) | Majlis Bandaraya Pulau Pinang
|
14. | Sama Jaya, Kuching, Sarawak | Kementerian Perdagangan Antarabangsa dan Industri, Terminal Perindustrian dan Pembangunan Usahawan Sarawak (MINTRED)
|
15. | Jelapang, Perak | Majlis Bandaraya Ipoh
|
16. | Kinta, Perak | Majlis Bandaraya Ipoh
|
17. | Sungai Way, WPKL | Majlis Bandaraya Petaling Jaya
|
11. | Tanjung Kling, Melaka | Invest Melaka Berhad
|
12. | Seberang Perai, Pulau Pinang | Majlis Perbandaran Seberang Perai
|
13. | Bayan Lepas, Pulau Pinang (Fasa I) | Majlis Bandaraya Pulau Pinang
|
14. | Sama Jaya, Kuching, Sarawak | Kementerian Perdagangan Antarabangsa dan Industri, Terminal Perindustrian dan Pembangunan Usahawan Sarawak (MINTRED)
|
15. | Jelapang, Perak | Majlis Bandaraya Ipoh
|
16. | Kinta, Perak | Majlis Bandaraya Ipoh
|
17. | Sungai Way, WPKL | Majlis Bandaraya Petaling Jaya
|
18. | Ulu Klang, WPKL | Majlis Perbandaran Ampang Jaya
|
19. | Port Klang Free Zone (PKFZ) | Port Klang Free Zone Sdn Bhd
|
20. | Telok Panglima Garang | Majlis Daerah Kuala Langat
|
Furthermore, Designated Areas include:
Tioman | Labuan | Langkawi |
Exemption for ocean freight charges for all goods delivered by sea mode, limited to these routes / destinations: -
o Peninsular Malaysia to Sabah / Sarawak / Labuan; o Sabah / Sarawak / Labuan to Peninsular Malaysia; and o Between Sabah, Sarawak and Labuan.
These enhancements are additions to the widening of service tax exemption scope for logistics sectors as announced on 11th March 2024.
Additional Service Tax Exemption Scope for Maintenance Services
The Government has also agreed to provide service tax exemptions for maintenance services for the following items:
With this, all maintenance and repair services at residential premises such as roof upgrades or for any items and/or fixtures attached to or part of the residential premise’s structure such as lifts, air conditioners and water heaters are not subject to service tax.
The service tax rate’s increase from 6% to 8% that came into effect on 1st March 2024 is concentrated on services that are discretionary in nature and B2B activities that do not directly impact the people. The increase does not involve key essential services that are part and parcel of people’s lifestyle such as food and beverage, telecommunications and vehicle parking.
Tax Treatment on Export and Import Activities
Service | Change in Service Tax Treatment
|
International freight (ocean / air) – store door service | Delivery services provided within Malaysia that are connected to international freight under a store door service are granted service tax exemption subject to the following conditions: -
§ The logistics company sells both international freight and landside delivery service components.
§ Landside delivery services are included within the bill of lading / airway bill.
§ Single service provider providing door-to-door logistics services i.e., third-party service providers (3PL) or fourth-party service provider (4PL) for shipments from a place outside Malaysia directly to a place within Malaysia or from a place within Malaysia directly to a place outside Malaysia.
§ Single service provider to issue a single invoice for logistics services from consignor to consignee (single billing invoice).
§ The goods delivered / exported / imported using the same airway bill / bill of lading / consignment note from consignor to consignee.
|
Port and terminal charges | With the reinstatement of service tax exemption for services performed within and between Special Areas and Designated Areas, services that are provided within a port or terminal are eligible for service tax exemption (with the exception of Customs clearance charges, which remain subject to service tax at 6%).
|
Cross border trucking | This is now eligible for service tax exemption provided there is a single transport service from a place in Malaysia to a place outside Malaysia or a place outside Malaysia to a place in Malaysia. The transport is covered under consignment note (CN) and the entire transport service is invoiced in a single invoice.
|
Transit activities | The service tax exemption for logistics services related to transit activities is now limited to shipments that are not broken down into smaller parts during the transit process. This means that the exemption only applies to shipments that are transported directly from one location to another without being divided or repackaged.
|
Threshold Value for Sales and Service Tax (SST) Registration
The threshold value for service tax registration for taxable persons providing logistics services is RM500,000 over a 12-month period. Service providers who exceed this prescribed threshold value of taxable services are required to register under the Service Tax Act 2018. The application for registration must be submitted to the RMCD not later than the last day of the following month. Once registered, the registered persons are obligated to collect, file and pay the taxes to the RMCD regularly.
Penalties for Non-Compliance
Failure to submit SST returns | Failure to satisfy SST dues |
•Fine up to RM50,000; •Prison term up to 3 years; or •Both. | •Fine amounting to RM50,000; •Imprisonment up to 3 years; or •Both. |
Furthermore, penalties will be imposed for late payments. Below is a tabulation of the penalty rates charged for varying durations of late payments:
Late Payment Duration | Penalty Rate
|
1 - 30 days | 10%
|
31 - 60 days | 15%
|
61 - 90 days | 15%
|
91 days and above | Maximum 40%
|
Conclusion
The attention for service tax compliance should increase following the implementation of e-Invoicing. For goods sold by a foreign seller to a Malaysian buyer, in other words for importation of goods, the reference number of Customs Form No. 1 (K1) “Declaration of Goods Imported” is required to be stated in an e-Invoice. With real-time data and an informative database, the tax authority can now swiftly carry out audits and identify discrepancies, abnormal and peculiar transactions or even potential frauds through the e-Invoicing model as it provides a clear audit trail with improved traceability. What’s more, the Inland Revenue Board of Malaysia (IRBM) had made it clear since the start that pursuant to Section 138(4)(aa) of the Income Tax Act 1967, e-Invoicing information will be shared with the RMCD. Therefore, businesses are advised to pay heed to the service tax compliance requirements as they are required to include the necessary particulars under the applicable laws, rules and regulations of the Sales and Service Tax Act 2018 for e-Invoicing purposes and to avoid imposition of multifold penalties.
You can also read the article at Wolters Kluwer: read article here
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