Govt urged to reconsider tax on MRO services
Stakeholders in the marine trade are appealing to the government to reconsider its decision to implement a new tax frame on ship maintenance, repair and overhaul (MRO) that has affected the marine industry.
They say the new tax frame is preventing them from keeping their industry competitive on the world stage.
“Right now, the way the tax is set up, it has become very challenging for all the stakeholders to shed light on the implications of these changes, particularly focusing on ship repair and MRO activities,” a joint statement from five marine associations said.
The five associations are 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 associations said they are finding it tough to stand toe-totoe with international players.
“We’re really hoping that our policymakers will take a moment to reconsider this tax. It’s about creating a fair playing field that not only supports growth and innovation but also champion sustainability in the marine MRO sector.
“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.”
The statement further said
ships are movable assets operating worldwide similar to aeroplanes and it’s clear that tax regime plays a pivotal role in shaping the competitive landscape.
“Countries like Singapore, Indonesia, Vietnam and Thailand have strategically implemented tax policies and incentives to strengthen their positions in the global maritime MRO market.
“Singapore, for instance, has leveraged its GST exemption for MRO-related goods and services to become a leading hub, while Indonesia has introduced VAT exemptions and established the Batam-Bintan-Karimun Free Trade Zone to spur growth in its maritime sector.
“Similarly, Vietnam and Thailand are enhancing their market attractiveness through various tax exemptions and incentives.”
The statement also pointed out such collective move towards favourable tax regimes is not only transforming the maritime MRO sector but also underscores the importance of adapting to these changes to remain competitive on a global scale.
In his remarks, Amim president Adren Siow said the introduction of the service tax marks a significant shift, primarily manifesting as an increase in operational costs within the highly competitive marine industry.
“We understand service tax will have a compounded effect through the supply chain supporting the marine industry. The foremost impact of the new tax regulations is an anticipated increase in operational costs across the board.
“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.”
On rising operational costs, Siow said businesses were expected to revisit their pricing strategies.
“This adjustment is a necessary step to ensure the sustainability of operations, albeit leading to an increase in the cost of ship repair and maintenance services. Such changes will invariably affect all stakeholders within the supply chain.”
Meanwhile, Samin president Dr Renco Yong King Hwa said Sarawak has built a robust supply chain for shipbuilding and MRO, gaining international acclaim for its high-quality work and dedication to maritime excellence.
“Our marine MRO sector is recognised for its exceptional skills and commitment, serving both local and regional fleets. However, the new service tax on marine MRO activities poses a challenge, potentially affecting our ability to compete on a global scale.”
SSA chairman Ting Hua Ang highlighted that historically, Sibu has been a hub for the shipbuilding industry in Malaysia, with dozens of shipyards operating within and around the area.
He said Sibu is renowned for its shipbuilding and ship repair industry, specialising in constructing and repairing a wide range of vessels, including tugboats, barges, offshore support vessels, and more.
“We wish to highlight that the introduction of the new service tax could present certain challenges to the competitiveness of Sibu’s shipyards and MRO providers, both on a local and international scale.
“The anticipated increase in service costs may lead ship owners, whether based locally or abroad, to consider more cost-effective alternatives in other regions especially Indonesia.
“The new service tax may also pose challenges to the competitiveness of Malaysian shipyards and MRO providers locally and internationally.
“With the escalation of service costs, there is a possibility that local or international ship owners may explore more economical options elsewhere, potentially impacting the volume of business for local entities. This scenario underscores the need for strategic adjustments to maintain market competitiveness.”
Mosva president Jamalludin Obeng said as an association representing the interests of offshore support vessels (OSV) owners and operators, Mosva is keenly aware of the challenges that its members face in maintaining cost-efficiency and competitiveness in both local and international markets.
He said the new service tax for marine MRO could potentially increase the cost of essential services, thereby affecting the overall operational expenses for OSV businesses and MRO service providers.
“Mosva remains steadfast in its commitment to championing the interests of our members while contributing significantly to the prosperity and advancement of Malaysia’s maritime sector.
“However, it is with a sense of concern that we address the potential implications of the recently introduced service tax on marine MRO services.”