KUALA LUMPUR (Dec 28): Prime Minister Datuk Seri Anwar Ibrahim has decided to further delay the imposition of service tax on goods delivery services provided by delivery service providers, including e-commerce platforms, until further notice, according to an official with the Ministry of Finance (MOF).
The tax was first proposed in Budget 2022, which was tabled by then finance minister Tengku Datuk Seri Zafrul Abdul Aziz under the administration of then prime minister Datuk Seri Ismail Sabri Yaakob.
Originally meant to be gazetted and implemented by July 1, 2022, the Royal Malaysian Customs Department announced a month prior to that that the new service tax — which excludes food and beverage (F&B) delivery services and logistics services — would be deferred until a later date to be announced.
The later date was understood to be Jan 1, 2023. However, Anwar, who is also the finance minister, has decided to postpone the effective date of the new tax.
No reason was given for the postponement, according to the MOF official when contacted about the effective date of the new tax.
Anwar’s decision comes amid the rising cost of living globally and in Malaysia, as well as a still-nascent post-pandemic economic recovery.
Currently, the service tax — which has been set at 6% for all taxable services — is only imposed on those who provide courier delivery services involving documents or parcels not exceeding 30kg. They have to be licensed under Section 10 of the Postal Services Act 2012, and are taxed under Group I, First Schedule of Service Tax Regulations 2018.
More time likely needed to clarify definitions, details
When contacted, Grant Thornton Malaysia’s head of indirect tax and transfer pricing, Alan Chung, lauded the new government’s move in postponing the service tax, saying businesses likely will need more time to seek further clarity on it.
He said while Customs organised a briefing on Dec 9 with tax consultants and other stakeholders about the expanded service tax coverage, consultants from the Chartered Tax Institute of Malaysia have noted several grey areas that ought to be further clarified by the authorities.
Some of these grey areas included the definition of F&B delivery as certain F&B retailers also sell groceries, while a number of grocery stores have pastries among their offerings.
“For example, does the delivery of frozen fish, together with a carton of carbonated drinks and pastries from the groceries — as certain grocery stores have their own bakery section — constitute F&B? We haven’t gone through the details. The [current] definition is open for interpretation,” he said.
According to Chung, the expansion of service tax to cover delivery services was proposed to address the disparity between service providers who are required to charge the tax and those who are not.
“The main target of this is people who impose delivery and handling charges [in the delivery of goods]. But what about retailers who sell electronic equipment like refrigerators and televisions? Is it taxable when they deliver to their customers, when delivery services are not their main business?” he asked.
Another tax consultant pointed out that certain transportation service providers may be subject to the tax, despite logistics services being exempted from it.
“The definition of logistics services is not clear. Some argue that a service provider can only come under this category if it involves an end-to-end logistics service, from preparation [of the goods], to storage, delivery and other related services.
“If not, this means transporters, who provide basic moving service and do not have a warehouse, will also be subject to the service tax. This additional cost may trickle down to consumers,” said a local tax expert who declined to be named.
The good thing is the government is delaying it, so this gives the authorities time to fine-tune the details, said Grant Thornton’s Chung. “I am pretty sure industry players still have some issues. How many are aware that they may be affected? The devil is in the details, let’s not rest on our laurels. With this extension, let us really work and get things sorted out,” he added.
And other than regulatory clarity, it is the right move to defer the implementation of the expanded service tax given the current economic and business environment, where inflation has resulted in rising costs pressuring not just households but also businesses — especially micro, small and medium enterprises — according to Socio-Economic Research Centre executive director Lee Heng Guie.