KUALA LUMPUR (Aug 16): An exemption from having to pay the 8% service tax is given for ship and aircraft leasing to prevent offshore registration, the Ministry of Finance (MOF) said on Saturday.

The imposition of the service tax may encourage local ship and aircraft owners to register abroad, which could lead to a reduction in economic and tourism activities in Malaysia, the MOF said in a statement.

The ministry said another reason for the exemption is to ensure the competitiveness of local industries, considering that neighbouring countries do not impose such a tax.

“Without the exemption, customers may switch to foreign shipping or aviation services,” it added.

The MOF also denied that the service tax exemption on ship and aircraft leasing was done discreetly, pointing out that an official notification was uploaded on the Royal Malaysian Customs Department’s MySST portal on July 24.

The ministry stressed that the exemption is specifically for the aviation and maritime industries, which play an important role in the country's supply chain, tourism sector, and economy.

“It does not apply to the rental of vehicles such as cars and buses, or business premises, which are different in terms of the way they are used,” it added.

Malaysia has imposed the 8% service tax on rental and leasing services with effect from July 1, but only for companies earning more than RM1 million a year.