Maritime and shipping bodies address implications of tax framework adjustments

SIBU: In light of the recent adjustments to the tax framework affecting the marine industry, five maritime and shipping bodies wish to address the community and all stakeholders involved, shedding light on the implications of these changes, particularly focusing on ship repair and Maintenance, Repair, and Overhaul (MRO) activities.
The five bodies are Association of Marine Industries of Malaysia (AMIM),Sarawak Association of Maritime Industries (SAMIN), Sibu Shipyards Association (SSA), Malaysia Offshore Support Vessel Owners Association (MOSVA), and Sabah and Sarawak Shipowners Association (SSSA).
Their joint press statement issued here on Thursday (March 21) stated that in a recent overview of the marine MRO sector especially for the marine industry, ships are movable assets operating worldwide similar to aeroplanes, it is clear that tax regimes play 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. This 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.
AMIM president Adren Siow remarked, “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.”
In response to rising operational costs, Siow pointed out that it is expected that businesses will revisit their pricing strategies.
He stressed that 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, he added will invariably affect all stakeholders within the supply chain.
Siow also highlighted that AMIM recognises that the implications of these tax adjustments extend beyond the docks and drydocks, potentially influencing the cost of goods and services for the general public.
As operational expenses for shipping and marine logistics experience an uptick, he stated it is plausible that these costs could cascade through the supply chain, affecting prices for imported goods and possibly impacting the cost of domestic products as well.
In these times of change, he said AMIN is committed to transparency and open dialogue with all our stakeholders, including the general public. Our industry is exploring every avenue to mitigate the impact of these new tax obligations, striving to ensure that any adjustments are as seamless as possible and do not unduly burden our customers or the wider community.
“It’s clear we need to take a closer look to keep our industry competitive on the world stage. Right now, the way the tax is set up, it has become very challenging for our local marine MRO services. They’re finding it tough to stand toe-to-toe 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 champions 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,” Siow added.
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.
Sibu, he pointed out, is renowned for its shipbuilding & ship repair industry, that specialise in constructing and repairing a wide range of vessels, including tugboats, barges, offshore support vessels, and more.
He also highlighted 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.
He foresees that the anticipated increase in service costs may lead shipowners, whether based locally or abroad, to consider more cost-effective alternatives in other regions especially Indonesia.
He said the new service tax may also pose challenges to the competitiveness of Malaysian shipyards and MRO providers locally & internationally.
With the escalation of service costs, he said there is a possibility that local or international shipowners 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,” Ting added.
MOSVA president Jamalludin Obeng remarked, “As an association representing the interests of OSV owners and operators, MOSVA is keenly aware of the challenges that our members face in maintaining cost-efficiency and competitiveness in both local and international markets.”
He stated 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, he stressed, remains steadfast in its commitment to championing the interests of the members while contributing significantly to the prosperity and advancement of Malaysia’s maritime sector.
However, it is with a sense of concern that MOSVA addresses the potential implications of the recently introduced service tax on marine MRO services.
“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.
“This consideration is driven by the need to ensure that our members continue to receive cost-effective and efficient services, essential for maintaining the operational excellence and global competitiveness of their fleets.
“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,” Jamalludin added.
SSSA chairman Yong Ing Huong said the service tax on marine MRO services presents a significant concern for the future of domestic logistic transportation provided by Sabah and Sarawak shipowners.
He said this new fiscal measure is poised to elevate operational costs, compelling these shipowners 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.”
“In light of these challenges, MRO providers are poised to recalibrate their operational strategies. This includes enhancing operational efficiency and incorporating advanced technologies to streamline costs and bolster service quality.
“Such initiatives are aimed at mitigating the impact of the new tax regulations, fostering innovation, and ensuring the delivery of high-quality services.”
The larger MRO providers who compete in the global market with a higher percentage foreign clientele will feel the impact the most, Yong noted, adding that they may find it challenging to absorb the additional costs while competing with neighbouring countries.