KUALA LUMPUR (March 21): The introduction of the service tax on repair and maintenance is set to increase operational costs for ship repair, and maintenance, repair and overhaul (MRO) activities, while potentially weighing on domestic industry players’ competitiveness on the global stage.

Beginning March 1, the service tax was widened to include repair and maintenance at a rate of 8%.

In a joint statement on Thursday, five marine industry stakeholders’ associations said with the escalation of tax costs in Malaysia, they may be forced to revisit their pricing strategies to ensure operational sustainability.

These associations included Association of Marine Industries of Malaysia (Amim), Malaysia Offshore Support Vessel Owners' Association (Mosva), Sabah and Sarawak Shipowners Association (SSSA), Sarawak Association of Maritime Industries (Samin) and Sibu Shipyards Association (SSA).

“The foremost impact of the new tax regulations is an anticipated increase in operational costs across the board,” said Amim president Adren Siow.

“This stems from the additional tax liabilities that businesses within the marine sector are now required to manage. It is likely that these increased costs may be transferred to customers, potentially elevating the expenses associated with the maintenance and repair of marine vessels,” he said.

Siow said the higher tax rates will make it tough for local marine MRO services providers to stand toe-to-toe with international players.

“If we can get our tax policies to match up more closely with those around the world, we're not just protecting our industry's future; we're also boosting economic development and ensuring that we continue to lead the way in marine services. It's an exciting opportunity for us to come together and make a positive change,” he said.

Samin president Dr Renco Yong King Hwa also said while Malaysia’s marine MRO sector is recognised for its skills in serving both local and regional fleets, the service tax imposition could increase challenges for the industry to compete on a global scale.

SSA chairman Ting Hua Ang concurred, saying that aside from MRO providers, the service tax is set to pose challenges to Malaysian shipyards’ competitiveness.

“With the escalation of service costs, there is a possibility that local or international shipowners may explore more economical options elsewhere, potentially impacting the volume of business for local entities,” said Ting.

“This scenario underscores the need for strategic adjustments to maintain market competitiveness,” he added.

Mosva president Jamalludin Obeng said the service tax could potentially increase the cost of essential services, thereby affecting overall operational expenses.

“In light of these developments, we find ourselves contemplating the exploration of MRO services beyond our national borders, particularly towards neighboring countries such as Singapore, Indonesia, and Thailand,” he said.

Jamalludin said this consideration is driven by the need to ensure that Mosva members continue to receive cost-effective and efficient services.

“Mosva wishes to emphasise that this contemplation does not diminish our dedication to Malaysia's maritime industry.

“Instead, it underscores the importance of a collaborative approach in addressing the challenges posed by the new service tax, with the aim of fostering a more competitive and robust maritime sector in Malaysia,” he said.

SSSA chairman Yong Ing Huong said the tax presents a significant concern for the future of domestic logistic transportation provided by Sabah and Sarawak ship owners.

“This new fiscal measure is poised to elevate operational costs, compelling these ship owners to adjust freight rates upwards to sustain their operations. Such a development not only impacts the competitiveness of our domestic logistics sector but also places an additional financial burden on the end consumers,” he said.