KUALA LUMPUR (Jan 30): The Federation of Malaysian Manufacturers (FMM) has proposed that the government defer the March 1 implementation of 6% service tax on logistic services to further study its exemption mechanism.

In a statement, the federation proposed that the government incorporate business-to-business (B2B) tax exemption to be extended from the manufacturing sector to the services sector as well, to reduce the tax burden on manufacturers.

According to the federation, the Ministry of Finance (MOF) is already considering providing B2B tax exemption for service providers providing similar logistics services “to ensure no taxes are levied amongst themselves but only to the final consumer”.

“We note that the B2B tax exemption will benefit integrated logistics services (ILS) companies which provide end-to-end logistics services.

“The B2B exemption for service providers however will not benefit manufacturers because as the final customer of the logistics service provider, manufacturers will still be required to bear the tax burden regardless [of] whether the services are offered by integrated logistics services [ILS] providers or individual domestic logistics companies,” the FMM said.

The FMM’s recommendation would result in any business with sale and service tax (SST) licence number 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,” it said.

“We understand our recommendations will require further study and amendments to be made to the law such as bridging the Sales Tax and Service Tax Acts and Regulations or developing supplementary legislation to support the B2B tax exemption between manufacturers and service providers.

“In this regard, we request for the service tax on logistics services be deferred to further study the exemption mechanism to help manufacturers reduce the tax burden,” the FMM said.

“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,” it added.

According to the FMM, logistics constitutes 8% to 15% of manufacturers’ operating costs, and is higher for low value consumer products. It is higher at up to 25% for businesses in East Malaysia, it said.

The federation added that it has been informed by the MOF on Dec 5 last year, that the government is considering providing exemption of the logistics service tax only for exports.

“While we welcome this proposal to provide exemption for exports, it is important for the service tax exemption to be granted for all trade transactions including imports due to the nature of manufacturing and trade as well as availability of material sources,” it added.