KUALA LUMPUR: The following are frequently asked questions regarding the scope expansion of taxable services and changes in service tax rates that will take effect on March 1, 2024.
What is service tax?
Service tax (ST) is a tax imposed on certain prescribed services. Service tax is also levied on imported taxable services (B2B) and digital services (B2C).
What services are subject to service tax?
i. ST is levied on prescribed services listed under nine groups in Schedule 1 of the Service Tax Regulations 2018, with the current rates effective from Sept1, 2018 as follows:
Group A: Hotels, serviced apartments, and lodging houses: six per cent
Group B: Restaurants, bars, or coffee shops: six per cent
Group C: Nightclubs, dance halls, cabarets, wellness centres, massage parlours: six per cent
Group D: Private clubs including clubhouses based on membership, profession, or class: six per cent
Group E: Golf courses or golf driving ranges: six per cent
Group F: Betting, sweepstakes, lotteries, gambling machines, or games of chance: six per cent
Group G: Professional services: six per cent. These include:
• Legal
• Accounting
• Appraisal / Assessment
• Engineering, Architecture
• Consulting, training & tutoring
• Information Technology (IT) / Digital
• Management services (maintenance, warehousing, collection & debt, parking, sports facilities and loyalty)
• Employment services
• Guarding / protection services (security)
Group H: Credit card services, or charge card services: RM25/year
Group I: Other service providers: six per cent. These include:
• Insurance & takaful
• Telecommunications
• Customs agents
• Vehicle parking space providers
• Motor vehicle services
• Courier services
• Rental and chauffeur services, car rental, and excursion bus services
• Advertising
• Domestic electricity supply >600kWh
• Local air passenger transport except Rural Air Services (RAS)
• Brokering & guaranteeing (financial related)
• Cleaning
ii. ST is also levied on imported taxable services starting from Jan 1, 2019, and digital services (Service Tax on Digital Services - SToDS) starting from Jan 1, 2020.
What are the new services subject to service tax?
New services include:
a. Karaoke centre services under Group C;
b. Brokerage and guarantee services for non-financial services such as ship/aircraft brokerage, commodities, and real estate under Group I
c. Logistics services under Group J.
d. Maintenance or repair services under Group G
What are the proposed new service tax rates in the 2024 Budget?
i. All taxable services are subject to the new service tax rate of eight percent except for the following services:
a. Food or beverage provision services under Group B;
b. Telecommunication services under Group I;
c. Vehicle parking space provision services under Group I; and
d. Logistics services under Group J
ii. ST rates for services under Group B, namely food and beverages, telecommunication services, vehicle parking provision, and logistics services, remain at a tax rate of six percent.
iii. The tax rate for credit cards and charge cards remains at RM25/year.
Summary of the scope expansion of taxable services effective Feb 26, 2024, and the effective date of the new tax rate is March 1, 2024.
What are the effective dates of the implementation of the expanded scope and new tax rate?
i. Effective date of implementation of the expanded scope: Feb 26, 2024
ii. Effective date of the new tax rate: March 1, 2024
What is the threshold value set?
i. For registration purposes, the threshold set is RM500,000 based on the total value of taxable services provided; and
ii. The threshold calculation is based on the total value of all services provided by service providers to consumers within a 12-month period.
What is the justification/rationalisation for the expansion of scope and changes in service tax rates?
i. In line with the Madani economic framework under the Best Governance for Service Agility, tax reform measures need to be implemented to broaden the revenue base, which will enhance service quality and assistance to the people. These measures include expanding the scope and changing ST rates.
ii. The expansion of taxable service scope to generally cover service groups aims to standardise and provide equal treatment within the same industry. For example:
• The new karaoke centre service, which is entertainment-based, similar to nightclubs, dance halls & cabarets under Group C.
• Brokerage and guarantee services, currently only applied to financial services, are expanded to include other brokerage industries such as ship/aircraft, commodities, and real estate.
iii. The change in ST rates from six percent to eight percent does not involve essential services that are part of the lifestyle of the people in this country. For example, services widely used by the people such as food and beverages, telecommunication, and parking remain subject to service tax at a rate of six percent. This includes new services such as logistics, which will be subject to service tax at a rate of six percent.
Do the scope expansion of taxable services and the increase in service tax rates lead to increased prices of goods? What proactive measures are taken to curb rising commodity costs?
i. Consumption tax in Malaysia, which is a single-tier tax, is administered by two different laws, namely the Sales Tax Act 2018 and the Service Tax Act 2018. Sales tax is levied and collected on:
a. taxable goods manufactured in Malaysia; and
b. taxable goods imported.
While ST is levied on certain prescribed services, imported taxable services, and digital services.
ii. Under the current service tax legislation, there are group relief and B2B exemption facilities aimed at reducing the impact of multiple taxation on certain taxable services.
iii. The proposal to expand the scope and change ST rates is not the main factor in the increase in commodity costs as there are other factors that are more likely to affect commodity prices, including demand and supply factors, foreign exchange rates, including traders' willingness to take advantage of excessive profit opportunities.
iv. As a proactive measure, consumers need to take prudent actions such as:
a. Reporting to the Domestic Trade and Consumer Affairs Ministry.
b. Boycotting service providers offering unreasonable prices.
c. Obtaining a service or buying goods only when absolutely necessary.
d. Making price comparisons/market research beforehand to get value for money.
e. Go viral (spread the word).
Group relief and B2B exemption facilities
i. Group relief facilities are provided under Paragraph 3 of Schedule 1, Service Tax Regulations 2018 for the provision of taxable services under items (a), (b), (c), (d), (e), (f), (g), (h), (i), or (l) in space (2) under Group G. Through this facility, companies are exempted from paying ST on taxable services obtained from companies within the same group of companies.
ii. The B2B exemption facility is provided for professional service providers; Group G (excluding employment agency and security agency services); logistics (Group J) and; advertising services (Group I) that receive the same services from other service providers. This facility is provided under the Service Tax Order (Persons Exempted from Paying Tax) 2018.