Service Tax Policy on Provision of Digital Payment Services by Local Non-Bank Providers

The Royal Malaysian Customs Department (“RMCD”) has just published the Service Tax Policy 1/2022 (dated 1 August 2022) relating to Service Tax exemption on provision of digital payment services by local non-bank providers.

Set out below is a summary of the Policy: -

1. The Minister of Finance exempts the recipient of digital payment services provided by local non-bank service providers from payment of Service Tax.

2. In relation thereto, the following local non-bank service providers are exempted from charging Service Tax due and payable on such digital payment services

  • Local non-bank payment instrument issuers;
  • Local non-bank merchant acquirers; and
  • Local non-bank payment system operators

Note: The local non-bank service providers need to meet the qualification as listed under Paragraph 5 of the Service Tax Policy.

3. This exemption is effective from 1 August 2022 to 31 July 2025.

4. This exemption is not applicable to foreign service providers or other digital services except for digital payment services.

5. During the transitional period:- 

  • Service Tax which has been collected on the provision of digital payment services between 1 September 2018 to 31 July 2022 must be remitted to RMCD.
  • No refund is allowed on registered person who has paid the Service Tax before 31 July 2022.
  • Where Service Tax has been accounted on invoice basis but payment has not been received on the services provided on or after 1 August 2022, the registered person should issue a credit note in accordance with the Service Tax legislation and make adjustments in the Service Tax Return accordingly.
  • For services provided before 1 August 2022 which straddles 1 August 2022, the registered person must charge and account for Service Tax on the services provided before 1 August 2022 only. 

Amendment to Service Tax Policy 10/2020 (Amendment No 2)

The RMCD has also issued the Amendment to Service Tax Policy 10/2020 (Amendment No 2) (dated 1 August 2022) in respect of Service Tax exemption on provision of digital services related to banking/ financial services. The Amendment includes:-

-        To limit the exemption period from 1 January 2020 to 31 July 2025;

-       To replace Paragraph 4.1 of the Service Tax Policy with “Banks, investment banks or any financial institution licensed under the Financial Services Act 2013 [Act 758], Islamic Financial Services Act 2013 [Act 759], the Labuan Financial Services and Securities Act 2010 [Act 704] or the Labuan Islamic Financial Services and Securities Act 2010 [Act 705]”.  Note: Previously, the condition was ‘and’.

Please click on the above header link for  a copy of the Service Tax Policies at the MySST portal (only available in Malay language).

As the above changes can have wide implications especially when more and more businesses are going digital, businesses should start looking into the impact of its provision of services (for digital service providers) as well as purchases (for acquirers of such services). Where required, engagement and discussion should be held with your customers and suppliers, and also look into the transition matters prior to the end date of the exemption (i.e. 31 July 2025).

Our highlights are intended to provide a general overview of the key proposed tax changes and should not be used or relied upon as a substitute for detailed advice or as a basis for formulating business decisions.

For customized guidance, please do not hesitate to reach out to your trusted KPMG adviser(s),

Petaling Jaya Office

Soh Lian Seng
Executive Director -
Head of Tax and Head of Tax Dispute Resolution
+ 603 7721 7019

Bob Kee
Executive Director -
Head of Transfer Pricing
+ 603 7721 7029

Tai Lai Kok
Executive Director -
Head of Corporate Tax
+ 603 7721 7020

Long Yen Ping
Executive Director -
Head of Global Mobility Services
+ 603 7721 7018

Ng Sue Lynn
Executive Director -
Head of Indirect Tax
+ 603 7721 7271

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Evelyn Lee
Executive Director -
Penang Tax
+604 238 2288 (ext. 312)

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Crystal Chuah Yoke Chin
Associate Director -
Ipoh Tax
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Regina Lau
Executive Director -
Kuching & Miri Tax
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Titus Tseu
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Ng Fie Lih
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